Discussions about housing affordability tend to focus on housing supply, local market conditions, income, and the regulatory environment. But when you step back from the abstract and consider a typical family's economic bottom line, it's apparent that local property and school taxes play an important -- and underreported -- role.
Just as a rough, back-of-the-napkin illustration of their significance to the Average Joe's pocket book, a full 33% of my total 2004 mortgage payments went towards local property and school taxes -- a hefty chunk of change to be sure. Of course, you have to pay to play, so to speak, so one just has to factor taxes into their ability to cover their monthly note. And while homeowners certainly enjoy seeing the value of their property increase, this feeling is tempered when they realize how rising assessments result in increasing tax payments that cut noticeably into their monthly budget.
Where local taxes really come into play is at the margin. For example, low-to-moderate income families may have purchased homes years ago when prices were affordable, but rising assessments in hot markets then push their tax payments sky high and jeopardize their ability to make ends meet.
But even taking equity issues out of the equation, the increasing local tax bite in many parts of the country is an issue that impacts most homeowners. According to the Wall Street Journal, homeowners are starting to notice (link available only to subscribers), and they aren't too pleased:
- "As home prices and property taxes in many areas of the U.S. continue to reach new heights, homeowners are aiming their sights at a common target: the local tax assessor.
Angry about higher tax bills, and not content with the formal appeals process, citizens are suing assessors or calling for their ouster. In other cases, mounting pressure is prompting city councils and community organizations to arrange grilling sessions where the spotlight is on the assessor to explain why assessed values and tax bills have gone through the roof.
. . . .
Such outcries are a common feature of heated housing markets, as longtime homeowners who bought at much lower prices get hit with huge tax increases. Similar fervor helped give rise to California's Proposition 13 in the 1970s, which limited municipalities' ability to raise taxes there and led to similar laws around the country.
But the increases in assessments in many parts of the country are particularly dramatic this time around. In some areas, people who bought just a few years ago are seeing increases in their property-tax bills ranging from 30% to 40%. Homeowners in Harris County, Texas, which includes the city of Houston, saw increases in property taxes of more than 106% in seven years, partly due to a "hyper-accelerated housing market" in the county, says Paul Bettencourt, Harris County Tax Assessor-Collector. The average property tax bill for a median-valued single-family home in the U.S. was $2,778 in 2004, up 9% from $2,549 in 2002, according to the Minnesota Taxpayers Association, a St. Paul, Minn., public-finance research group.
A reason why assessments have jumped stems partly from a cash crunch at the local level. Many localities have been strapped for money during the past few years due to state cutbacks and the economic downturn combining with rising costs for education, law enforcement and other services. So they turned to the housing market as a growing money pot."
Read the whole thing. The article goes on to discuss the varying methods that assessors use to value property and the difficulty of achieving uniform assessments. It's a bit reminiscent of watching sausage get made.
It's nice to see, though, that citizens are stepping up and making their complaints heard. They're really caught between a rock and a hard place, though, as the total tax bite is composed of two factors -- assessments and tax rates -- either or both of which can be tweaked by local policymakers when the well runs dry.