Local tax debates are in an odd place where the most visible revolt against “regressive” taxes is directed at property tax — a tax on wealth, if not income. There are, of course, hard cases, but I’ve been struggling to find a column with the right mix of sympathy and focus on the truly poor. In yesterday’s open thread Al Dimond did it for me:

There’s sympathy, and then there’s policy. The choices that cash-poor, fixed-income people have to make are tough; those people that are also house-rich often didn’t choose to be house-rich, and can’t access the benefits without taking on some risks. There’s lots of room for sympathy.

But it’s most fair and most practical (from a tax stability point of view) to tax both income and accumulated wealth. High-earners here get away with criminally low taxes and reform is needed so they pay their fair share. But it’s hard, from a policy perspective, to put property taxes first in line for relief in tax reform, rather than sales taxes. People with wealth in property have better choices and better means to make them than the poor people gouged by sales taxes and usage fees. California’s attempt to protect people from rising property taxes ended up being spectacularly poorly targeted, and easy for rich and well-connected people to effectively exploit to their benefit — in California people with lots of accumulated wealth are under-taxed as badly as high-earners in Washington, to the detriment of other taxpayers that bear higher burdens, and of the public realm generally.

We’d probably do better by encouraging (and sometimes subsidizing or even directly building) more diverse housing types in more places, so that people that do move don’t have to move so far, than by trying to build tax policy around people living in the same houses for the rest of their lives (then passing those houses on to their children). There are lots of non-financial reasons staying in the same home doesn’t work out, and people making those transitions for any reason need better options and more support.

In our interview with Cary Moon last year, the candidate shared an anecdote of an elderly homeowner who had to take in boarders to stay in her home. I wasn’t quick-witted enough to say it at the time, but this is the production of naturally occurring affordable housing. While no one likes to see sympathetic people be lightly coerced, dynamics like this operating at scale are the only thing that can solve the affordable housing crisis.

81 Replies to “Comment of the Day: Property Taxes”

  1. The situations of renters and homeowners are completely different and should be considered separately. Other states, such as NJ, have renters’ rebates. WA State does not have renters’ rebates. Renters pay the owner’s property tax, but they have never received the federal itemized deduction. When a renter, especially a senior citizen or a person with disabilities, or a mother with a young child, has to move, this is very different from the situation of someone who can sell a house for $800K and buy a townhome for $500K.

    1. If you believe renters in effect pay property tax (which I happen to believe is true) then you also have to look at the offset in that cost of renting provided by property tax relief. If a landlord is charged $100 in property tax that $100 is added onto the rent; a cost of doing business, right? If the landlord has a $100 offset in his income tax (the rent is income) then the property tax zeros out as a cost. The tax break never actually zeros out but the renter may be getting a better deal than if he paid the property tax directly. That is, if the landlord is in a higher tax bracket the reduction in cost is greater than the tax would be for the renter.

      It cuts both ways which is something Seattle doesn’t seem to get when they keep trying to “help the little guy” by screwing landlords All it ends up doing is raising rents. First by raising costs but perhaps an even greater impact in our hot real estate market is pushing landlords to sell and the supply of rentals being reduced (owner occupant) or moved “up scale” (new luxury units).

      1. If the property tax went away tomorrow, how many people believe rents would decrease significantly? At the end of the day, housing supply is unaffected and same for demand. The market would keep rents high (under current inventories).

      2. under current inventories

        That’s the key. If property taxes went away tomorrow, Monday would see a surge in housing investment.

      3. What? Housing is being held back by property taxes? It’s being held back by the zoning cap, by the limited number of parcels available for seven-story buildings, and by the lack of available construction workers. Any developer that wants to build is doing so now; they’re making a huge profit on top of the property taxes.

      4. It’s both, Mike. Not all areas that are zoned for taller buildings have development. If you own a parking lot then you make money on the lot, and don’t pay much in property tax. You pay a tax on the land, but nothing for the structure (because it is so small). If you build an apartment, then you pay the same for the land, but you pay a lot more for the structure.

        That’s why some cities, in an effort to increase development, only tax the land. They tend to do that in certain areas (downtown) as opposed to city wide. That way a guy with a huge house still pays more than his neighbor with the bungalow.

      5. Another is that the cost of alternatives (for the renter) go up. Imagine an apartment next to a condo, and the city passes a huge increase in property taxes. The condos are more expensive, making the apartments more desirable.

      6. “Not all areas that are zoned for taller buildings have development.”

        There are some lots waiting for the market (in the owner’s eyes). But there are others zoned for four stories where the current building is 2-3 stories: that means the owner won’t gain much by rebuilding, just one story. Sometimes even SF houses remain there because there’s still not enough additional capacity building to the limit, especially when you subtract space for required setbacks and parking.

        But again, what’s allowed is a few tall buildings on a few lots. If moderate six-story buildings and row houses were allowed over a wider area, there would be more developer interest in building smaller “missing middle” buildings at less cost, and we’d still end up with significantly more housing. All these people who want SF houses: many of them will accept a townhouse/rowhouse. It’s just that few of them available and they have a high price. Even if they go to Issaquah or Snoqualmie, their choice will be townhouses or close-together houses, because that’s the only reasonable kind at this population level. So maybe a row house in Seattle is not so bad if the alternative is a close-together house in Issaquah.

      7. @Mike Orr
        >>>All these people who want SF houses: many of them will accept a townhouse/rowhouse. It’s just that few of them available and they have a high price. Even if they go to Issaquah or Snoqualmie, their choice will be townhouses or close-together houses, because that’s the only reasonable kind at this population level.<<<

        They will indeed sell, and sell quickly. This is essentially most of what I see being built lately around my area in SW Snohomish County. Out of curiosity, this past winter I went to check out a nearby development of 56 two and three-bedroom townhomes (rowhouse style). The 2-bedroom homes, at that time, were list priced in the low $400k range; the 3-bedroom homes were list priced in the upper $400k range. They ranged from 1344 sq ft to 1819 sq ft and all existing structures had been presold at the time I went to view the development. I think the land consisted of several parcels that the developer was able to acquire from an estate, plus purchasing a couple of neighboring parcels. The plans conformed to the county's existing land use/zoning parameters for that area, so the project avoided that whole hurdle.

  2. The last comment about elderly people taking in boarders being “naturally occurring affordable housing” has a very “let them eat cake” tone to it. Remember they could afford their taxes before this huge run up of prices. And one day tech workers who today can afford to be flippant could be priced/taxed out by even richer people.

    1. Of course they will be, if nothing is done. Hell, as of 10 years ago I was already priced out of most anywhere decent in Portland (but could find some far more affordable places in really desirable in Seattle by comparison).

      I’m not hearing any realistic solutions proposed though.

    2. While no one should be forced from their home, there are tens of thousands of empty bedrooms in this city, while children sleep on the street. Can government policy (taxation or otherwise) play any role in rebalancing our bedroom supply, possibly by incentivizing people into right-sizing their living arrangements? I think that’s the fundamental question. Alternatively we could just ignore the empty bedrooms and focus on creating a ton more public housing. We should absolutely do that, but it would also require high levels of taxation… so were back to square one.

      1. I’ve spent time in old census records researching family history, and I’m always impressed by the creative housing arrangements our ancestors employed. Adult siblings lived together, older parents (often widowed mothers) lived with adult children, and families included young, single men listed as “lodgers.”

      2. Right, families were larger and multigenerational families were the norm. Elderly parents lived with their children because Social Security didn’t exist. Nuclear families came to the fore in the 1950s with the rush to the suburbs, the idea that the “American family” was a father, mother, and two children. Construction had stalled for twenty years with the Depression and War, so people were even more doubled up in the existing housing, and this is how society channeled it.

      3. @Frank C.
        Well put. You summed up the situation very concisely.

        I’m guilty of having excess bedroom space in my own modest home and have thought about the possibilty of a boarder from time to time. It’s a situation I have never found myself in before tbh, having grown up in family of 12 in a duplex in NY (with a three- generation family of 9 renting our upper flat), living with roommates during my college years and young adulthood in NY and then living in small one-bedroom apartments here in Seattle before finally purchasing my current home. I just don’t know how much of a market there is for boarders in my area as far north of the city as I am.

      4. What about something like the 4% or so annual cap on increase in property values, similar to what California has, only unlike California have the property value reset to the sale price when it gets resold?

        Some downtown commercial buildings sell for far more than the assessed value as they are one of a kind buildings in unique locations. This would help tie actual property tax values to what those are worth to the investors buying them.

      5. Some downtown commercial buildings sell for far more than the assessed value

        All commercial buildings downtown are grossly under assessed. If commercial real estate in King County was fairly assessed home owners would see a huge reduction in their property taxes. If you don’t believe me go to the King County assessors office. It’s public record what the tax assessed value is, the property tax amount and the sale price history.

      6. Under assessment by ~20% was the norm in King County until about 2000 or so when they started assessing residential at market value. Of course with home prices rising by the year the assessed year was over it was again under valued. When the market collapsed and the market value of homes dropped “over night” by ~30% the assessed values continued to rise the following year and then dropped by only ~10%; in effect remaining above true value until the market started to recover. Commercial property OTOH remains assessed below market value in many cases <50% of actual sale prices.

      7. Glenn, California does reset property tax when properties are sold. That’s why California is often called an acquisition value system. I do think there is a place for property tax smoothing, and unraveling Prop 13 in California when the property tax savings have been capitalized into the purchase price would hurt thousands of people, especially those minorities who bought during the subprime era in 2008 and are just barely over water. The smoothing would be a maximum increase of 10% assessed value per year or the Countywide average increase in property values, whichever is higher, and would allow for better budgeting. Also the senior exemption should be expanded to more than just those couples with under $40,000 in income, because medical expenses are high (even with Medicare) and some grandparents are supporting grandchildren (or now-seniors who had kids late in life) – it should be based on family size and off the federal poverty level per person, 300% or 400% should be eligible for some relief with the amount increasing as you go down, much like Obamacare subsidies.

        You might be thinking of Oregon which has a weird system based on the taxes in the neighborhood at the time of the ballot initiative that cut it down.

    3. Ask any home owner if they would prefer either:

      1. A massive increase in the value of their home and a similar percentages rise in their real estate taxes.

      or

      2. No increase in home value but their real estate taxes stay low.

      Why should someone get to benefit from a huge appreciation in home value without any contribution in taxes to help everyone else effected by it? It is like getting a huge raise at work and then saying it’s a burden to have to pay more taxes.

      We need creative solutions, not was of tax avoidance for those whose homes have created great amounts of wealth (liquid or otherwise.)

      The issue is that increased home value does not directly create liquid assets for someone on a fixed income. But that increased value is real and there should be a way to fairly tax it.

      1. “The issue is that increased home value does not directly create liquid assets for someone on a fixed income. But that increased value is real and there should be a way to fairly tax it.”

        Exactly. That’s the key word right there: “fairly”. And that’s where the debate starts, as people have different viewpoints on the fairness of how the book appreciation of real property, particularly an individual’s primary residence (and in most cases, sole residence), should be treated for tax purposes.

        “Why should someone get to benefit from a huge appreciation in home value without any contribution in taxes to help everyone else effected by it? It is like getting a huge raise at work and then saying it’s a burden to have to pay more taxes.”

        I don’t find your analogy to be a valid one. Apples and oranges to me. Book appreciation on real property is simply not the same as an increase in income from wages.

        And to answer your hypothetical question, and as a homeowner, I would choose option 2 as I have never viewed my home as an investment or retirement vehicle. Being “house rich” is something I have never particularly desired.

      2. I think most would take option 1… and I think a lot of older homeowners are retiring largely off of real estate gains, and that’s great. Yes, that means they decided to cash out and sell their homes. But I think that choice is in many cases made to capture the profits from the home more than it is for property tax reasons. But I could be wrong.

    4. Brad: right, the housing crunch affects everybody. Old and young. Even lower-echelon tech workers are starting to have trouble.

  3. While my family lives in it, I can not extract monetary value from my 800 sq ft condo at the same rate as a similarly priced but larger home in a cheaper neighborhood. This bit about property taxes bothers me and makes me wonder if it wasn’t conceived in a time when “property” mostly meant land.

    1. There should be some solution to this. I can imagine a simple option where a person who can’t afford to pay the increased taxes can defer them and owe an increased excise tax at time of change of ownership be (plus interest.) That would make it tougher to pass on a property as inheritance, but at least someone can stay in their home.

      That way the taxes based on the increased value in the home still get paid. So I’d your home is worth 600k more at time of sale, you might owe the city a portion of that profit if you were unable to pay the higher real estate taxes while you were living there on a fixed income. To me that is fair to both parties.

    2. There is a tax deferral program. It has limited qualifications but some people benefit by it.

      1. If that program already is in place, then who exactly is being forced to move?

        It sounds like a chance to cash in on inflating home values is why people choose to sell and move father out. Or maybe people in fixed incomes are unaware of tax deferral options where they can make up the difference using their increased equity at time of sale?

        Otherwise it just sounds like people complaint about having to pay taxes on their windfall. Again sorry that sounds harsh, but how else would you accurately describes the situation?

      2. There have been people on STB saying they don’t qualify. Your income and assets and situation have to be within a certain window.

        (This is a problem with most American social programs: they have gaps that people fall through. And then certain politicians are in denial that the gaps exist.)

      3. That’s essentially how the property tax deferral program works here in Washington. It works for some folks, but still many others still fall through the cracks. It’s a deferral program only, so the taxing jurisdictions still get what they are owed eventually, plus interest.

    3. It seems like the simplest answer would be to expand that deferral program to cover more people on a fixed income. That would be fair to all parties. While there at it, there should be a city program to help people on fixed incomes manage ADU’s. Again, would be a win-win.

  4. It’s impossible to cover every corner case but largely ignored in this discussion is the owners ability to get a reverse mortgage. Every real sorry story I’ve heard on the news about elderly people being priced out of the home they own outright has always left me asking why nobody seems to address this possibility. REALLY BAD financial advise? And, if you don’t want/need to do that a simple home equity loan. You’re paying what, maybe 6% (maybe less) while the property is appreciating 20, 30, 50% a year. The property rich, cash strapped scenario is a hard sell; in this market at least.

    1. Most banks won’t do HELOCs to people with low incomes. Presumably it is low income people who can’t afford their property taxes.

      My grandmother was in this situation. She couldn’t get a loan, but we realized she was eligible for the reduced property tax rates. Otherwise, her children and grandchildren were prepared to chip in to cover the taxes. None of us are extremely rich, but we could all come up with $100/month to keep her housed.

      There’s also another option. Simply don’t pay the taxes. You’ll incur a lot of penalties and interest, but I don’t think there is any risk of eviction. It just becomes a lien on the property.

    2. Agreed. I don’t understand why there isn’t more talk about a reverse mortgage, since it is the exact situation where it makes sense.

      1. Reverse mortgages are not a good option.
        You can lose your home if you can’t afford to pay taxes, insurance, or maintain the home.
        If your loan exceeds the value of your home, you or your heirs will have to make up the difference if the home isn’t sold when the loan is due. Interest accrues and you can easily end up owing more than the selling price. The loan is due immediately if you sell or move. Renting it out generally is not an option. There goes the implied lifetime income – Income from a reverse mortgage stops if you sell your house or move.
        False implications that a reverse mortgage is a government benefit rather than a loan – Some lenders even use government logos to convince you to buy.
        If you or anyone you know is considering a reverse mortgage—don’t do it! A credit line is better or even ugh selling and investing in something less expensive. Many of the younger people here will likely inherit some wealth from their family home. While if the USA were socialist, that might not matter, but building a little family wealth is a survival strategy for now.

    3. You can apply for property tax exemptions and deferrals through your counties assessor’s office if you are in your early 60’s and are low income (cuttoffs depend on program). Check it out on the assessor’s website.

  5. I doubt landlords would be able to “pass on” property taxes unless the market supported increasing rents. “Stick it to the landlord” still works because in a rational market the landlord would just increase rent by X and keep all of it. This is the same way a sales tax or VAT works, otherwise just stop and think about it, no business in their right mind would oppose a sales tax increase–just pass it on the the consumer! Well, what happens when the consumer simply isn’t willing to pay the higher price? Seller either has to lower the pre-tax price and accept less profit, or leave the market, and the market reaches a new equilibrium. This is exactly what happened with the crash back in Miami–landlords simply couldn’t just increase rent to keep up with the HOA increases, and either had to rent at a loss or leave the market (which unfortunately many ended up doing, exasperating the crisis!) Granted, other “non market” forces come into play here–judging from Seattle Times comment sections, there are some politically conservative landlords wanting to stick it to tenants they may perceive to be political opposites. All I have to say is, 1) be careful about overshooting the market, and 2) I dare you to try and pull that during a down rental market.

    1. Rents are not based on property taxes; they’re based on the vacancy rate. When the vacancy rate is low, more tenants are competing for the same number of units so the price goes higher, and well-off renters are able to bid it up out of reach of middle-income or poor renters. When the vacancy rate is high, rents go down. This is exactly what happens in Seattle. Rents went up in the early 2000s, then down with the 2008 crash when a lot of people moved away, then up again in 2011 with the recovery, then down this year in a few markets like downtown where more buildings opened at once than can be filled immediately.

      Prices are sticky on the way down because nobody wants to take a loss. So landlords keep the rate steady as long as they can, then they offer “sales” (“Second month free!” “Free mircrowave or TV!”), and then finally they lower the rent. This is what happened in 2008-2010.

      Landlords could theoretically owe more in property taxes than than they gain in rent, in a deflationary environment, but this is the opposite of the Seattle situation. In 2000 landlords charged rent and paid property taxes and made a reasonable profit. Now their property taxes and overhead have gone up a little bit but rent has gone up hugely — doubled or tripled in many cases, so they’re making a massive screaming windfall. Crocodile tears about property taxed don’t cut any ice, and they didn’t when my studio rent went up $150 one year because of “taxes and utilities”. Yeah, right, show me the bills. $150 x 12 months x 24 units is $43,200. Your taxes and utilities went up that much? In a deflationary situation, where landlords can’t pay their expenses because rents are going down faster than the expenses, then we can talk about tax breaks for landlords.

      1. Rents are not based on property taxes; they’re based on the vacancy rate.

        It’s absolutely true that rents are based on vacancy rate. But, the supply will be determined by the ability to turn a profit. Eventually it all factors into the price but the real estate market is inherently slow to react. It can’t bounce around like gas prices because owning property is not a “liquid” asset. Also, there’s usually long term leases that moderate swings. .I generally agree that they tend to come down much more slowly than they go up. People have to live somewhere but landlords don’t have to rent.

      2. The rate of development will shrink but it won’t go down to zero. The first to leave will be Wall Street investors who are interested only in the highest profits. That will leave room for local developers who are currently outbid for the limited spaces in urban villages. If the city were to relax the zoning to allow more areas with 4-7 story buildings and citywide duplexes and row houses, more lower-budget developers would appear, including homeowners.

      3. Correction: rents were moving rapidly downward in 2003 and fell off a cliff in 2004 when people were scrambling to purchase a home in a market with healthier purchase supply than today. In fact, rent leases started stabilizing at a faster rate vs. mortgage purchases after the 2008 crash, but the lack of purchase supply after 2008 accelerated the current situation (which has no end unless zoning changes.

    2. Most of the research on the subject suggests that the taxes are passed on. It isn’t obvious how, but I think one is that the cost of construction goes up. Another is that the cost of alternatives (for the renter) go up. Imagine an apartment next to a condo, and the city passes a huge increase in property taxes. The condos are more expensive, making the apartments more desirable.

      1. This is a fairly complicated question to answer actually. It is further complicated by the ongoing debate between the two models, i.e., viewing property tax as a benefit tax versus as a capital tax. I recall reading this paper on the subject matter about ten years ago from this economics professor from Rice University who reviewed the existing literature and developed his own model to test. For those truly interested in the two approaches, I highly recommend reading it.

        https://www.lincolninst.edu/publications/articles/who-pays-property-tax

        I also remember saving in my computer files a paper from 1996 that was published in the National Tax Journal back in the mid 90s. It was titled “Is the Property Tax a Benefit Tax? The Case of Rental Housing”. It was very enlightening and has always stuck with me. (It’s a pretty heavyweight research paper so it can be difficult to digest for those not familiar with the subject matter and/or the mathematics involved in the statistical modeling. Nevertheless, I have provided the link below for those who may be so inclined to torture….correction….read themselves. Lol.)

        The conclusion from said paper was as follows:

        >>>According to the “‘new view” of the
        property tax, property tax differentials
        will be borne by renters only to the ex-
        tent that renters are immobile relative to the other actors in the rental housing market. This paper shows that when associated changes in service quality are recognized, some of the burden of these differentials falls on renters even if they
        are mobile. This shifting occurs because tenants are willing to pay higher rents to receive the better services purchased by higher property taxes. However, fully mobile tenants (or tenants facing a fixed housing supply) are indifferent to an increase in the property tax because the
        benefits from the associated service
        quality increase are exactly offset by an increase in rent. Thus, the property tax causes no distortion in the behavior of such tenants.

        Even with fully mobile tenants, however, the property tax is not a benefit tax unless the rent increases caused by a property tax increase (through a service quality increase) exactly equal the increase in the landlord’s tax payment. Otherwise,
        landlords pay some of the tax increase without receiving the service quality increment. This tax burden on landlords is a source of distortion. In our sample, a $1.00 property tax increase results in a rent increase of only about $0.15, on average, even with infinitely elastic housing supply. The magnitiude of the resulting tax burden on landlords varies from
        one community to another. As noted
        earlier, for example, there is more shifting onto tenants in a community with low public service costs than one with high public service costs, all else equal. Nevertheless, rent increases never fully compensate landlords for tax increases, and the maximum rental increase in a single community is only $0.25. This conclusion is confirmed by a simulation of the burdens placed on landlords from
        existing tax differentials across communities; on average, higher rents offset only 55 percent of the tax differences paid by landlords. In our sample, therefore, the property tax on rental housing falls far short of being a benefit tax, even under assumptions that make the benefit-tax outcome most likely.<<<

        (The results are summarized nicely in Table 5 of the report.)

        I'm not sure I agree with all of the authors' conclusions, but it was still enlightening for me to see them published as well as the overall strategy employed in their approach. I would love to see how a more current study compares to this paper.

        https://www.ntanet.org/NTJ/47/2/ntj-v47n02p295-316-property-tax-benefit-tax.html

        Fwiw.

  6. We currently live in a Seattle home that a family member bought for <10K in the early 70's… and our current taxes are about 10K a year because the home has increased in value over 100X since its purchase.

    And we should absolutely be paying those taxes. It's a small price to pay given the massive amount of wealth this home has generated for our family. In our case, the home now has an ADU that more than covers the taxes. If we chose to move out, then we can pay someone to manage the property and live off of the income for the rest of our lives… while paying taxes that help Seattle's future.

    There are lots of tax issues in Seattle that should be addressed, particularly the issues with regressive taxes. But I think high real estate taxes that go to funding basic services has to be fairly low on my list of complaints (and I'm paying these taxes.) I think most people who own Seattle homes and benefited from a huge financial windfall from the increased value of their homes have options that enable them to use the increased value to their benefit to deal with the tax burden. Some will move to lower priced areas and use the profit to retire comfortably, which IMO is not a tragedy, although I agree we need to find creative ways to help people to retire in place should they chose. Others can build an ADU or DADU and pay someone to manage it.

    We should be looking for these types of creative ways to help people tap into some of the value in their homes without moving out. Helping people build and manage DADU's would a win-win because it creates density, affordable housing and passive income that could enable more homeowners to retire in place. A reverse mortgage is a less ideal option, but works on the same principles.

    But I don't think someone who's net work has increased 500k or more through home appreciation should be able to escape paying taxes on that windfall. To me that is winning the lottery and then not paying taxes on your winnings. And now everyone else has to make up the tax shortfall… that everyone else being people who did not make hundreds of thousands off their homes appreciating.

    So work on solutions that allow people to turn some of the increased value of their homes into passive income that can offset higher taxes. But there has to be a way where people who own valuable homes continue to pay taxes based on the value of their home. Just because a home is not a liquid asset does not make the value of that home to your net worth any less real.

    1. Such a load. The valuation number is virtually fake until you sell. I think my grandparents bought their West Seattle home for $7500, and while the taxable value is now insane, they pretty much still live the meager lifestyle they did way back when they purchased that 2 bedroom bungalow. The only difference is that they have a crazy high tax bill to pay that takes a very noticeable chunk out of their fixed income (a Metro bus driver’s pension). It seems like punishment for something they had no control over.

      1. Agree with Felsen. That is such a load. You have no mortgage, and at least one decent income I’m guessing, so no wonder you have no problem paying a $10k property tax. Lucky you. It’s the only housing-related cost you have. People on fixed incomes have no flexibility about earning, they just pay more every year. And even households with two incomes will have trouble servicing an $800,000 mortgage on the million dollar house they just bought, and also paying the $10k property tax.

        I’m somehow not surprised this article was published on 4/20–the author sounds high. Yes, the sales tax should be lowered, but that does not end the necessity of lowering property taxes. There should be a tax on high incomes. Other taxes should be lowered. It’s pretty simple. All I hear from our electeds, though, are proposals for new and ingenious taxes, never a proposal to lower any. If this keeps up there will be some version of California’s disastrous Prop 13, you watch.

      2. The value they have in that West Seattle home is absolutely real. It is just not liquid. I’m sorry if their pension excludes them from getting a tax deferral (as discussed above), and clearly that would be the most fair option… because the city deserves taxes eventually on a valuable home.

        I’m all for trying to find options to help people retire in place. But those options should be about deferral and not avoidance of taxes. Also, if they do chose to move then that hundreds of thousands of dollars of equity would be very real and life altering for them and future generations.

        I guess having lived so long in the Midwest, where home values have not risen… but property taxes have still shot up in order to pay for underfunded pensions gives me a different perspective on your grandparents circumstance. I wish them well, I just view their financial situation through a different lens.

      3. I give you the +100. My mother-in-law lives in Seattle in a home her husband and her husband’s parents built in the 50s (in which three generations lived together for decades). She is there by herself now, wishes to remain there and lives the type of life you describe, worrying more with each passing year about how she will be able to pay her property tax bill.

        Also, folks need to keep in mind the impact on seniors’ fixed incomes simply from their more frequent need for medical care.

      4. The valuation number is virtually fake until you sell

        That makes Jeff Bezos a fake billionaire since Amazon stock has no value until you sell. Seniors can loose all of the very real equity in their own home due to medical expenses. And that typically happens in a short period when quality of life is very low. It’s understandable how an elderly person, perhaps one that’s never been expected to deal with financial matters, would be totally confused by the myriad of options (and scams) that are out there. It’s harder to accept when there are younger generations that seem to think that nest egg comes from the golden goose.

    2. In is not a load. We are currently in the process of buying the house at market value. We are fortunate enough to be able to afford the Seattle housing market, which is pretty rare (after saving a ton from having a good job and living inexpensively in the midwest for 20 years.) And the money we spend on the home is going to a family member… so we sort of all benefit. So basically our purchase of the family home will pay for their retirement.

      I’m simply giving my perspective as a person who both deals with the tax burden and outrageous home prices in Seattle, and is buying from someone who is benefiting from from the 100X appreciation of their home. To be honest, I think my part of the story *being able to afford a Seattle home) is much more rare than the other half of the story (someone retiring off of the capital appreciation of their home in Seattle.)

      Honestly, we would not have chosen to move to Seattle except to be closer to family (we are not in tech.) Otherwise the insane real estate market would have scared us off.

    3. “But I don’t think someone who’s net work has increased 500k or more through home appreciation should be able to escape paying taxes on that windfall. To me that is winning the lottery and then not paying taxes on your winnings.”

      I find your posts on this subject matter problematic.
      1. You have mentioned “tax avoidance” a few times but i don’t think anyone has suggested that such longstanding property owners should have a total exemption from this liability.
      2. Again, your analogy with “winning the lottery” is not a valid one. (You’re comparing apples to oranges.) The increased property value is only a “windfall” when the property is ultimately sold; until then it remains book (unrealized) appreciation only.
      3. Expanding on #2 above, you also need to consider that the property owner pays the taxes on this much appreciated value, what you have called a “windfall”, EVERY year that he/she holds the property. It’s one of the few examples of a wealth or asset tax we have in this country.

  7. I just want to pay my fair share of taxes and see others do the same. Property tax is regressive without income tax and likely some other wealth taxes. A home will represent a much smaller to smaller portion of the wealthy person’s income and assets than it will for others. This is generally true as incomes rise. And, yes, landlords do increase rents when taxes rise.This is not to say that they would lower if property taxes decreased. I don’t think we have had the chance to test the case where property taxes decreased. Not all home owners itemize on their income taxes, and it would be interesting if renters received a statement indicating their share of property tax and had the opportunity to deduct from the income taxes–Come to think of it that might mean the landlord would not be able to deduct.

    1. On a side note, with the new tax laws in effect, I think few home owners will be able to itemize their property taxes anymore. The one glaring exception being landlords, who will be able to continue to subtract real estate taxes as an expense.

      On the flip side, that will create an additional incentive for people to create ADUs, which at least held with the housing crunch.

      1. They still can, up to the maximum. Since Washington doesn’t have income tax the amount of state sales and car tax most people pay is relatively low. Property tax plus mortgage interest will still put most people over the limit.

    2. What tax do we have that’s less regressive than the property tax? It’s a tax on wealth that *most* scales with wealth. I think there are plenty of wealthy that pay a large percentage of their income on their mortgage – rich people tend to own more expensive homes.

      I think most of us agree that an income tax would be a nicely progressive option. But considering that requires a state constitution change, that’s just not an option when considering any specific tax bill.

      So I’ll ask this, to make sure I’m not missing some option: pretend there’s a transit measure on the ballot. What tax option would you suggest that’s more progressive than a property tax?

      1. The difference in the portion of assets and income that a home represents for a middle/working/lower income person is very very different than for a very well off person.

      2. “The difference in the portion of assets and income that a home represents for a middle/working/lower income person is very very different than for a very well off person.”

        That might generally be true. But in pricey markets like Seattle that whole paradigm is shifted up by a lot. Meaning that the low, middle and many middle-upper income folks don’t own hones at all. And the mid-upper income earners have to dedicate a fairly high proportion of their earnings to cover home ownership (mortgage/taxes/upkeep/insurance.) You need to be really wealthy or have gotten in the market years ago to be in a position where you are spending a lower proportion of your income on housing than the average homeowner in a “normal market.”

        Say you make 130K as a family (about 80%tile in Seattle)- your average house is 800K and the housing stock tends to be full of older homes that likely need more ongoing maintenance. If you put 200K down your expenses are about 50K a year. That’s 40% of your income. So a family in the 80%tile of earnings is majorly overextended in this market. They are hardly milking the system IMO.

        Compare that to a more “normal” market like Chicago, where you can get homes ranging from 150K-2M+ depending on location and size. You have good transit options like Metra and CTA to get you from affordable neighborhoods to jobs. An 80%tile earner their has a chance of having a real advantage over lower earners. For example, we lived in a 200K home in the suburbs that would go for 700K anywhere in Seattle and that meant no mortgage and low property taxes. So there we had a huge advantage.

        My point is that the generalization that costs of home ownership is a regressive expense in Seattle is something that only really applies to the top 1%. The bigger issue is that entering the home ownership market in Seattle is a complete pipe dream to the vast majority of people in Seattle. And the lousy 10 mile+ transit infrastructure and traffic here makes it doubly bad because the comparatively affordable neighborhoods outside the city limits are painful commutes.

      3. +1, I don’t believe many people really sit down to calculate the squeeze on homeowners even if a family of four are pulling in $100k, even if they bought the house for $500k in 2011, the extreme changes in valuations and parallel changes in property taxes are going to push people out. But many are hanging on because they have kids in school and don’t want the stress of up rooting everything you’ve worked for.

      4. The bigger issue is that entering the home ownership market in Seattle is a complete pipe dream to the vast majority of people in Seattle. And the lousy 10 mile+ transit infrastructure and traffic here makes it doubly bad because the comparatively affordable neighborhoods outside the city limits are painful commutes.

        The market here does seem to be insane. What I can’t understand is why all these crazy people are still moving here. A portion are moving here from places like SF and think these prices are a bargain. It used to be Boeing brought people here. Good paying blue collar jobs and affordable post war housing made it attractive. Our climate, natural beauty, decent schools attracted a bunch of engineers from a far a field as England. Really, the only thing I can see driving it is the tech bubble. But that doesn’t explain 1/2 million dollar plus cookie cutter homes out in Monroe. There seems to be a lot of buy now because the price is going up so fast. That can only lead to the type of boom-crash cycle the SF bay area has seen repeatedly.

        The problem with the property tax windfall then becomes what do local governments do when faced with reducing spending cold turkey.

      5. I think there are plenty of wealthy that pay a large percentage of their income on their mortgage – rich people tend to own more expensive homes.</blockquote.
        Exactly! I'd also point out that this asset tax on property also captures revenue from someone that's "made their millions" and has little to no current earned income.

        Strictly from a fairness point of view I think of property tax as being a user fee. Your property value is maintained by having decent schools, police & fire protection and local roads. It's like insurance on a car. If you own a new Tesla you're paying more in insurance than someone with a 12 year old Civic. Why shouldn't someone with a mansion pay more for protecting that investment than someone in your standard issue $800k hovel?

  8. Small time landlords are not the villains people are making them out to be. The banks, insurance companies, realtors, utilities, corporate real estate companies and the city are the ones making a killing.

    I rent my Portland home out because of health issues and I can’t afford to live there. I have had to seek out an alternative living situation. I rent the two bedrooms at the going rate for the area. However I still have to subsidize expenses to the tune of $400.00/mo.

    I’ve had to fix the place up on my own, from the nasty task of installing installation in a 2 ft spider and bacteria infested crawlspace to the replacement of the kitchen and bathroom, and I still need to give it a paint job.

    Of course I look to the day I can sell it (the years of grief renters cause is more stress than people realize and the cost of a rental is a lot more than renters comprehend). Without the proceeds of the sale I would be homeless. I have no pension or retirement accounts because every dime I have ever had has been sunk into the house. So forgive me if I think millennials are parasites. They are just a bunch of entitled brats that think life is a bunch of freebies and that they shouldn’t have to move somewhere affordable, but it is the home owners that should be forced to move, and then in-turn, allow large enterprises to consume their houses.

  9. I wish the GOP had gone further and just completely eliminated the mortgage interest deduction. All it does is favor owners (generally richer folk) over renters (generally poorer folk) and serves to inflate housing costs. It’s the only part of the tax cut I liked, and wish they had at least kept the max at 500K.

    This won’t solve all the problems Seattle has regarding affordability, but it will help some. Right now it’s just lack of inventory, and people with high wealth and or income moving to Seattle faster than the inventory can expand.

    Property taxes should be raised. It is really the only backdoor tax on wealth we have. They are low in Seattle compared to most of the country, as a percentage of the value of the house. Yes, there’s grandma who wants to stay in her house. But there are myriad ways to extract that wealth and let her stay, and they are not really predatory the way they were 30 years ago. For some it makes mucho sense.

    But exacerbating the ridiculous house inflation, making it impossible for non-rich to live in Seattle any more, is not a good way to go.

    Jigger the tax structure to level the playing field between owner and renter.

    Slap an income tax on high earners.

    Raise property taxes.

    Maybe a tax on capital gains.

    Tax financial transactions a penny a trade, though that would have to be federal. Hit the quants.

    Let’s of ideas of progressive taxation, given the will.

    1. >> Yes, there’s grandma who wants to stay in her house. But there are myriad ways to extract that wealth and let her stay,

      Sorry, grandma – we’ve got to extract your wealth. Don’t worry, you get to stay in Seattle.

  10. I think there are 3 things always missing from these types of blog entries regarding taxes/housing/rents/renters or some combination:

    #1: Switching costs – in the current sale/purchase situation with regards to current homeowners, the vast majority of people who need to stay in the area, and start looking at the current home purchase options, they do not switch to another home due to what you potentially do not receive in return, regardless if the price of the new home is more or less. Even if you cash out and have more monies available for a purchase at a higher price, is the neighborhood the same? The neighbors? The commute better? We can even classify this as complacence, however, most homeowners are well aware, I’ll repeat well aware of the changes in values on their property/-ies, but they do not wish to be thrown into real estate mess our local and state governments have been building for years.

    #2: Renovation vs. Relocation: hands down, anyone with a reasonable IQ, does there homework and talks to their neighbors know in the current market, it is far cheaper to renovate your home vs. finding another one. What many people do not grasp: if you choose to renovate, your taxes will go up due to the county assessor deciding your house is more valuable than before. In Seattle/Puget Sound, this will happen whether you renovate or not, so unless the roof is leaking or the heat is not working, don;t bother.

    #3: It is now more cost effective to rent your house to someone willing to pay the taxes and utilities vs. yourself over the life of your loan: Not surprising and happening for years, we have “officially” become San Francisco as of 2014-ish by a drowning bundle of expenses that no longer are worth paying yourself. When your average out-of-pocket expenses to maintain a home rise beyond 50% of your mortgage payment (say you pay $1000 to the bank, but escrow + utilities now average $500 additional) you have crossed the threshold of sanity and common financial sense in staking the claim “the property is worth living in and paying for out of my own pocket”. I expect to see an acceleration of these activities in the next few years, and unlike public traded companies that are banned from the SEC to collude, landlords speak to each other. All.the.time.

    #4: Last but not least, without electing a city council and mayor that have the backbone to increase zoning densities across a wider area in Seattle, single-family homeowners will continuously see their taxes go up, so longer as there is limited purchase housing stock added to the city (vs. purpose built rentals). Simply, as more people are added, more services are needed. Those services become higher utilities and higher property taxes (for new schools, fire, police….the basics, not even new park space which is a total disgrace in this city….but I digress). Who will pay for those new services? Existing homeowners.

  11. The crazy high value in one’s home is phony wealth. It’s not usable like a high salary or investments are, and if you do access that cash through borrowing or selling, you’re probably in a more jeopardized position than you were before. I don’t like seeing people of very modest means (like my parents or grandparents) who bought cheap houses in Seattle being punished for acting sensible 30-50 years ago. They were just teachers, bus drivers, and industrial workers who aren’t technically poor in retirement, but aren’t anywhere near as wealthy as the “fake” Zillow estimates would make you believe.

    1. Property tax assessments aren’t based on “fake” Zillow Estimates.

      “Punishing” people for making sensible choices is another way of saying that we are taxing successful people to help less successful people, which is a definition of progressive taxation. Why should I be “punished” for getting the advanced degree I needed for a high-paying job? Because that’s how progressive taxation works.

      1. But everyone should pay their fair share. In this state the wealthy are not paying their fair share and the low income are paying more than their fair share. Another piece to consider is that property taxes do not follow an individuals schedule of ability to pay. Income tax does. When it comes to regressive tax at the state level, no one has it worse in the United States than Washington. According to a 2015 Who Pays? Report, issued by the Institute on Taxation and Economic Policy, lower-income families pay nearly 17% of their incomes in state and local taxes, while the wealthiest families (i.e. the “one percent”) pay about 2.5% of their income in taxes.

        To put this into proper perspective, in Alaska, low-income families pay about 7% of their income in taxes, while the wealthiest pay 2.5%. The spread is even closer in states like Idaho (8.5 % paid by low-income families and 6.4% paid by the wealthier families) and Oregon (8.1% paid by low-income families and 6.5% paid by the wealthier families).

      2. @Joanna C
        I agree. The fairness is the issue for me, so thanks for highlighting that aspect. Also, thanks for posting the info from the ITEP report. I’ve cited that same source in a couple of my posts. Finally, I find comments by the likes of Martin’s above to not be very helpful to the discussion. His is an apples to oranges type of comparison. Wage income and appreciated property value (unrealized gain) on one’s home are two very different things. The latter is a wealth tax, which isn’t necessarily a bad thing, but it needs parameters to protect low-income individuals and seniors living on fixed incomes (who happen to be “house rich” on paper).

    2. The real tragedy of these insane real estate prices is that today’s generation of teachers will never be able to buy a home in Seattle. And almost no is eligible for a pension outside the military.

      The problems are real, and they hit the current generations harder. They don’t have a home they can cash out on, and likely never will as long as they stay in Seattle. While your grandparents could rent out their home and live off of the rent+SS+pension quite comfortably in Seattle or elsewhere… and still have large estate to pass on or cash out on if need be.

      I’m not saying that is perfect or their dream retirement- but it seems like a lot better options than those looking at the housing market without what you are calling “fake” equity.

      1. By pension I was referring to Felson’s comment about retired “teachers, bus drivers, and industrial workers.” Those careers tended to have pensions in the past but no longer have them. So someone who is a retired homeowner and worked in those fields is in a far better off position than anyone working i Seattle in those same fields today can hope for in the future.

        Sounds like this is not the specific issue your family is dealing with.

  12. Also if you are looking at property taxes on homes as a tax on assets and the increase therein, then investments (assets) of all sorts should be taxed. Capital gains would be one place to begin. There is nothing wrong with some property tax, income tax and sales tax as the combination helps stabilize the revenue necessary to provide our precious public services. Certainly stocks are more easily turned into cash without total disruption of a persons life than a home is. Property tax by the way is due even for those who are underwater.

    1. Then expand deferrals and use a sliding scale based on federal poverty line, and apply it to the unemployed and renters as well (maybe the renter files the paperwork and the landlord gets to pay less property tax on that unit, provided they stabilize the unit’s rent for the duration of the deferral – this also would help keep affordable housing without expanding into full blown California and New York style rent control). Like many means tested programs the cliff effect is huge and while many well educated people can manipulate their income to keep income amounts low (for example, maxing 401k contributions, taking non-reportable tax free distributions from Roth IRA instead of traditional IRA, using savings bonds to defer interest income) the people that would best benefit from the program aren’t aware of these strategies.

      1. I agree that the tax system is too complex. It’s also too easy to avoid. A “prime” example is buying online to avoid WA sales tax. Property taxes are one of the few things that’s virtually impossible to avoid. The simplest way to lower the property tax burden is to reduce government spending. It’s ironic that with the complaints about property taxes hurting the poor they are increased to subsidize low income housing.

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