According to the Case-Shiller index, home prices have increased by 44% since February 2020. Of course, this is just an average and some markets have seen much larger price increases. However, even in the real estate markets of Central America, where prices are supposed to be more reasonable than on the coast, prices have risen sharply.
In Cleveland, for example, the index has increased by 40% since the beginning of 2020. During the same period, the index rose 50% in Atlanta and 33% in Chicago.
This type of price inflation is not just a product of housing supply. Demand for housing has been greatly inflated by nearly fifteen years of historically low interest rates, followed by huge flows of newly created money during the covid panic. As economist Brendan Brown pointed out, although consumer price growth appeared weak between 2008 and 2020, the effects of monetary inflation had long been visible in asset price inflation (such as property prices).
So it’s not at all surprising that property taxes are also increasing. Fortunately for the owners, they have not yet followed market price developments. According to a message Homeowners Pay $339.8 Billion in Property Taxes April Housing Analytics Company ATTOM Report: $339.8 billion levied on single-family homes in 2022, up 3.6% from $328 billion in in 2021. This increase is more than double the 1.6% increase seen in 2021, although lower than the 5.4% increase in the previous year.
The report also shows that the average tax on single-family homes in the United States will increase by 3% to $3,901 in 2022, following a 1.8% increase in the previous year.
At the state and local level, some property tax increases have skyrocketed. Michigan, for example, raised property taxes to a level not seen in 28 years. Some local governments have raised property taxes by 20% or more. However, in many areas, property tax increases have not even kept pace with inflation.
So if real estate prices are increasing by an average of 40% or more, why aren’t property taxes as high? These relatively modest increases can largely be explained by the fact that their ratings are not instantaneous, but often change over long intervals. In other words, many homeowners may find that there is still plenty of bad property tax news ahead.
Realtor.com newsFor example:
“Property tax bills have increased or are about to increase as local governments benefit from rising housing prices in recent years. And homeowners facing higher bills have no recourse… Most people should expect property taxes to rise, says Carl Davis, director of research at the Institute on Taxation and Economic Policy. We are currently witnessing (land) valuations catching up with the market. This process will continue in the coming years. Local authorities are facing rising costs like everyone else. And the price explosion during the Covid-19 pandemic has given municipalities a unique opportunity to do something about it. »
Kiplinger’s Note that states and local governments will do everything in their power to translate rising property prices into higher revenues:
“In areas that have seen strong appreciation in home values, homeowners should prepare for the possibility that their local government will raise rates to accommodate higher assessments, even as home sales stabilize,” experts say. For local governments, inflation has driven up everything from civil servant salaries to school supplies. Additionally, due to the covid pandemic, commercial space owners are facing a large number of vacant units, which has led to a decline in income from these sources. »
This last detail is particularly troubling: anyone who has been interested in real estate knows that commercial real estate is “ worsened », and that more bad news is expected. That means policymakers will likely look to residential real estate to fill the gap.
Another reason property taxes do not keep pace with housing prices is political pressure on them. Of course, in some jurisdictions policymakers have almost free rein to raise taxes at exorbitant rates. But in many areas, taxpayers will heartily resist being told to brace for a 20 or 30 percent increase. On the other hand, politicians almost always get away with the less obvious policy of not lowering property taxes, even when housing prices fall. We shouldn’t pin our hopes for tax cuts on the decline in housing prices that would occur during a recession or financial crisis.
Indeed“Even if property values go down, property taxes generally don’t go down. Instead, governments typically raise the percentage at which homes are taxed to make up for the shortfall caused by falling values.
Property taxes are especially bad for the unemployed, the poor, and the elderly
More than one sleazy libertarian has described the property tax as “the rent you pay to the government to live in your own home.” It’s not fake. In addition, residential property taxes can be particularly devastating in times of economic crisis, far more devastating than income taxes.
For example, if the economy worsens, the unemployment rate can be expected to rise and real incomes to fall even more than they have in the past two years. When it comes to income tax, a drop in income generally translates into a lower tax bill. But will our property taxes go down if we lose our jobs or take a pay cut? Almost certainly not.
If there are new assessments at the end of the inflationary period, the owners may be hit by a new increase in property tax at the very moment when their professional situation is deteriorating.
The next step can of course be to move the whole family into the basement of your elderly parents’ house. They are not immune from property tax either. It is among the most damaging taxes for seniors on fixed incomes.
Retirees rely on their savings and income from investments, or on government transfers paid by current employees. The total income of retirees is generally much lower than what they received when they were employed. This translates into income tax savings, but rising home prices and property taxes can push them out of their homes. This phenomenon also leads to more turnover in neighborhoods. Tax fugitives leave behind broken social networks in neighborhoods where residents rely on each other for social and economic support. The left may condemn gentrification, but it has no problem with it property tax increase which accelerates gentrification perhaps more than any other policy. Real estate foreclosures are a in a safe way get rid of elderly and low-income residents of a gentrifying neighborhood.
Some states have introduced laws about homestead and similar policies limiting property tax increases for people of a certain age. These measures only mitigate the effects of the property tax increase. Even a small increase can be disastrous for the elderly or disabled, who do not have much opportunity to increase their income to meet their tax obligations.
There is no such thing as a neutral tax
Nothing I write here should be construed as saying that the property tax is objectively the worst type of tax. As Murray Rothbard has shown, there is no neutral taxand each type of tax has its own impoverishing effects. There is no tax that does not reduce our utility by taking some of our wealth and spending it differently than we would.
Nor can we say that a property tax is “better” than, for example, an income tax. Income tax does present specific problems.
However, as we have seen, the property tax attacks one of the most basic needs and assets in human life, housing, in a way that the income tax does not.
Additionally, focusing on income tax as the “worst” state tax may lead some to underestimate the true cost of property taxes. For example, states with no income tax like Texas like to brag about it, as if this absence makes Texas more or less tax-exempt. Obviously, this is not the case at all. Texas ranks third national rank in property tax burden, behind New Jersey and New Hampshire and only slightly better than Illinois. (New Hampshire also has no income tax.) Of course, this is not to suggest that Texas adopt an income tax. There are indeed advantages to not having an income tax.
However, every government will struggle for tax revenue, and property taxes are likely to become a very lucrative resource in the coming years. This is just another burden we carry in this age of easy money and price inflation.