A comment on property taxes and prices

Image source: Los Angeles Times

The low prices in the 'no-zoning' city of Houston, Texas, are repeatedly called upon as an example of how zoning increases home prices by reducing housing supply. I have debunked the 'Houston argument' before.

But I want to now briefly comment on how the property tax regime in Houston, and Texas generally, is a major factor keeping home prices lower than otherwise. To do this I calculate the price reduction that would occur to a home I own in Brisbane, Australia, from adopting the much higher property tax regime of Houston.

My home in Brisbane is worth about $430,000. I pay $2,260 per year in property taxes (or council rates as we call them).

Looking briefly at housing options in Houston, Texas, homes with a similar market value are paying between $6,800 and $10,000 per year in property taxes— more than three times as much (and up to five times as much, depending on location).

So, how much cheaper would my Brisbane property be if we adopted the property tax rates of Houston? Rather than taxes at 0.5% of market value, like mine, they were increased to 1.6% of market value.

The answer is that my home would be at least 22% cheaper. The extra 1.1% of market value per year tax liability would reduce the market value of my home from $430,000 to around $335,000, with the loss being the present value of this higher 1.6% tax obligation associated with ownership (at the new $335,000 market value).

In areas where the capitalisation rate of housing is lower than Brisbane, like Sydney and Melbourne, the price effect could easily be higher than 30% (as I have previously explained here).

Before we look to zoning and planning issues to reduce home prices, which even advocates believe could at best reduce prices by 10% over a decade[1], maybe a hard look at the property tax system would help.

fn[1].  This is conditional upon property developers voluntarily building so many new homes they force prices down, and that an extra 2.5% of the workforce, or 300,000 people, could be pulled from other industries to increase construction output by 30% more than the record high construction rates over the past decade.

July rants

1. Ocasio-Cortez
Trump says nonsense daily. Obama tells flat out lies. Yet a passionate new political player can send the 'twitter leftie economists’ crazy simply by answering an interview question about the unemployment rate in an ambiguous way (despite the answer as a whole having merit).

If you want to give a free pass to your enemies then keep attacking your allies.

Ugh, she needs an economic adviser.
Instead of that nonsense she should say:
Wages are largely stagnant despite the strong economy & rising profits.
Too many people have to add a side-hustle to their main job to cover the rising costs of childcare, healthcare, and education. https://t.co/QKZGjOxMT3

— Betsey Stevenson (@BetseyStevenson) July 17, 2018

2. Capitalism vs socialism
This whole debate is a waste of time. There is already extensive social control and ownership of the ‘means of production’ in all 'capitalist' countries (see video below). The public sector component of GDP is more than 37% in the ‘ultra capitalist’ US, while it is over 50% in many European countries. Even the apparently capitalist Singapore is, in reality, a massive socialist experiment.

Capitalism and socialism are just words you use to signal loyalty to your group, who will interpret them however they like. They don't help you lobby for specific policy changes that you think will make the world better.



3. Job guarantee vs basic income
Another case of groups with basically the same agenda undermining each other. There is nothing incompatible, technically, about these ideas. You can give everyone money unconditionally and offer anyone a job who wants it so they can earn even more money. This is what I think should be done, and we should make a big push, politically, in that direction.

One’s position on this often comes down to their moral philosophy about the value of work. Or in other words, is poverty the result of not having money, or not working for money?

This moral distinction is also important for related social questions. Do job guarantee advocates also think that offering our elderly a job is better than offering them money? Why not both?

4. Plastic straws
If our problem is plastic in the ocean making it uninhabitable of many species, I don’t see how banning straws is the solution. At best it is a distraction, and could just be an excuse for those companies or individuals going ‘strawless’ to feel good (moral licensing anyone?).

If your backyard was full of plastic would you stop buying straws? Would that fix it? Or would you get cracking on cleaning it up?

We put men on the moon. Some crazy billionaires are in a race to put us on Mars. We can spend trillions on military weapons suitable for fighting the last wars, not the next ones. How about a few billion dollars spent on ships, equipment, and manpower, to clean up our oceans and rivers? Call it ‘Ocean Force’ if it makes you feel better.

The environmental movement is plagued by these dilemmas. Should we reduce meat consumption because of the land use conflicts between grazing and native wildlife habitats? It’s easy, not effective, but provides a sense of moral superiority. Or should we organise to protect important wildlife habitats from being cleared for farming, but allow people to eat whatever they like? It’s not easy, but it’s the only thing that will work.