Property Taxes and Home Prices

- – - UPDATE – - -

Do to the many, many comments I’ve recieved from people who seem to think I’m somehow bashing Houston here, I thought I’d repeat here what I posted in one of the comments:

I’m not arguing that Houston collects disproportionately more taxes than other cities do, because I don’t know whether or not they do. I’m not trying to say that Houston is ruthlessly pummeling its citizens with taxes. My point in this post is not that Houstonians are over-taxed in total, merely to examine the significant impact that our property taxes have on the market value of our homes.

This is clearly a major contributor to the list-prices for homes in Texas being lower than in many other states. The ways in which we choose to collect taxes distorts the market, and I find this particular impact to be interesting because I think people are overlooking it when they talk about the “low price” of housing. There are a lot of factors that contribute to the low market price of housing in Houston, and this is a big one.

That’s my one and only point in this article.

I’d strongly encourage everyone to scroll through the whole post and read all the comments, there’s some interesting stuff! Thanks for reading!

- – - – -

At one point in my recent trip through the northwest I was talking with my brother-in-law, Drew. Both of us have been thinking about buying homes recently, and we were comparing some of the differences between the Seattle area housing market and the Houston area housing market.

Since I’ve only recently begun to consider buying a home, I have only recently begun to pay close attention to the real world impact of property taxes. I have to say I was a little surprised when I realized what a significant chunk of any monthly payment I might make would go to taxes, and I was a little disappointed when I realized how much less home I could afford after taxes.

Now, when I first started talking with Drew, I was trying to be considerate of how much tougher it must be for him to afford a home in the Seattle area, where median prices are notably higher than they are here. He was talking about how he couldn’t find much under $200k, and I was saying that’s too bad, he should move to Houston. Then we started talking about property taxes, both of us agreeing that they were way too high, and that it was really frustrating when you realized how much less home you could afford after tax.

Then I gave him the example of what the taxes would be on the price of home I’m looking to buy, and his jaw dropped.

“Woah. Our taxes aren’t THAT high,” said Drew.

It turns out he’s right. By state law, property taxes are capped at 1% in Washington, whereas in Houston taxes are about 2.5%. What difference does that make?

Well, let’s consider the possibility that we’re hypothetically both in the market for $250,000 homes. At today’s interest rate (about 5.5%) and 5% downpayment that would require a principal + interest payment of about $1290.

In Houston, your taxes would be $6250 per year ($521/mo). In Seattle, they would be $2500 ($208/mo). Therefore, the base payment (principal, interest, and taxes) in Houston is $1811, and in Seattle is $1498.

The Houstonian pays $313 per month more for the exact same mortgage.

Now, I know what you’re about to say: “But Texas doesn’t have income tax!” Guess what? Neither does Washington.

Property Taxes in the 4 Largest US Cities

Now, this got me thinking. The monthly cash flow I lose to taxes would equate to a significant increase in the amount of mortgate I could afford. That means, logically, that in a place with higher taxes, the VALUE of a home must be lower in order for it’s COST to be the same to the purchaser.

At this point it dawned on me: monthly payments nationwide are probably a lot closer together than people think – but the home value will be much higher where taxes are low. Therefore many of the places that we lambast for their high prices may not actually cost as much more as we think. To figure out whether or not this was actually true, I decided to compare property taxes in the 4 largest cities in the US: New York, Los Angeles, Chicago, and Houston.

First and foremost, let me say this: finding out good information about property taxes is surprisingly difficult. I spent quite a while digging around to get the information I could, and it’s not perfect. For instance, I could not find any reliable information about average property taxes in a metro area, and good data about median prices across entire regions is hard to come by as well. Additionally, every place collects taxes using different (and sometimes asinine) methods, so it’s hard to be sure whether you’ve accounted for all the taxes in an area.

For what it’s worth, I found that Los Angeles was the easiest place to get good information, followed by Houston (but only because I know how to use HCAD), and then New York and Chicago. Chicago is impossible, I don’t think that the government there even knows where they get their taxes from. However, after a lot of effort, I was able to get defensible averages to compare residential properties to each other in all four cities.

To make a comparison I calculated the tax bill on a $100,000 property, which makes it very easy to see the effective tax rate (annual tax/property value). Here’s what I found:

New York City:

The tax rates in New York City are very unusual. They have divided the city into four classifications of property, each of which is taxed at a different rate. From what I can tell, this rate contains all the various taxes (city, county, schools etc). This is somewhat different from the rest of New York, which has a tax system more like what we have in Texas (layers of taxes seperately assessed by various entities).

Residential property is considered Class 1 property, and it is taxed like this:

Market Value * 8% = Taxable Value
Taxable Value * Tax Rate = Tax Bill

In New York, a $100k home would pay $1,295.68 in property taxes annually. This gives us an effective tax rate of 1.3%.

Los Angeles:

Property taxes in Los Angeles were actually very easy to determine, you simply had to determine what your Tax Rate Area is. The state has a 1% property tax, and special local bonds are added as a surcharge to this.

For a property in central LA, a $100k home would pay $1200 in taxes, with an effective tax rate of 1.2%.

Chicago:

Ok, Chicago’s tax system is ridiculous. Here’s how it works…

Estimated Market Value * Assessment Level (10%) * State Equalization Factor (2.8) – Standard Exemption ($5000) * Tax Rate = Tax Bill

Now, I couldn’t get any good information about the exact tax rate in Chicago, but I found a list of tax rates for the region here. Based on an average of about 8% tax assessment on adjusted assessed level after exemption (???!!!) it looks like this:

A $100k home would pay $1840 in property taxes annually, with an effective tax rate of 1.8%.

Houston:

As locals, we should probably be familiar with the Houston tax system. We get charged layer upon layer of little taxes from the various entities that provide services to our property, and these add up to an average of about $2.50 per $100 valution in the city.

A $100k home would pay $2500 in property taxes annually, with an effective tax rate of 2.5%.

So in other words, Houston’s taxes are more than double those of Los Angeles and New York, and quite a bit higher than Chicago’s.

How does this impact property values?

To compare the effect this has on property values I ran some simple math. For each city I compared the Principal and Interest payments for a mortgage at today’s rate of 5.5% for homes at five different price levels ($100k – $500k). Next I computed the property tax for each of those homes and determined the combined base payment (Principal, Interest, and Tax) for each. Then I calculated how much “additional mortgage” the taxes were worth – in other words, how much more loan could a person get for the exact same monthly payment if there was no property tax.

Here are the results (all numbers are rounded):

For a $100,000 home:

100k

For a $200,000 home:

200k

For a $300,000 home:

300k

For a $400,000 home:

400k

For a $500,000 home:

500k

So, as you can see the price impact of the Houston’s taxes becomes increasingly apparent as you move up the price ladder. When a person buys a $200,000 home in Houston they’re actually making payments worth $273,000 including taxes. When a person in Los Angeles buys a house for $200,000 they’re making payments worth $235,000. It costs the person in LA the equivalent of $37,000 less to obtain the same loan.

Now, back to our original point: the median home price in these other cities is higher, but how much higher is their monthly payment?

Monthly Payments Compared
(note: calculations using today’s interest rate of 5.5% and 5% down payment. Median home price data here: NYC, CHI, LA, HOU.)

monthlypayments

So, while homes remain clearly more expensive in these other major cities, it’s also clear that the actual cost of ownership isn’t as dramatically different as one would think based on the sales price alone. Most shocking of all is to compare the tax bill in Chicago and Los Angeles. People in Chicago and LA actually pay LESS property tax than people in Houston, even though their homes are worth significantly more.

To look at the cost and value of housing a different way, I compared the median prices to the median payments in percentages using Houston as a baseline.

Cost Versus Value
(Using Houston as a baseline)

relativevalues

What this shows us is how much more a home is worth in one of the other cities, versus how much more it costs. The biggest surprise is Los Angeles, where an average home is worth double the average in Houston, but costs only 175% as much.

The most important number here is the tax impact. Basically what this means is that in Los Angeles about 31% of the difference in price as compared to Houston is solely because of tax differences. Basically, because the taxes are lower people can afford to borrow more for the same monthly payment.

Local Impacts

The greatest irony here is how this plays out at the high end of the market. Because our taxes are so high, the cost to own valuable property becomes significantly higher here. I’ve illustrated how this progresses with a simple chart.

realvalue-vs-taxvalueWhat you can see in the chart is how the actual cost to own a property is much higher than the real value of the property, and how this gap becomes larger as a property increases in value. For instance, if you have enough cash flow to make payments worth $200,000, you can only actually afford about a $150,000 home in Houston. As you look up the scale the difference becomes more ridiculous. $750,000 worth of cash flow actually gets you $550,000 worth of property in Houston – that’s $200,000 in value lost to property taxes.

Therefore, if you’re rich, and you’re planning on buying a mansion, you’re better off living in Los Angeles or New York.

The tax punishment is even worse when you consider the impact of appreciation. Even at 5% average appreciation (A little more than inflation, realistic for Houston) a house at the median price today ($189k) would see its taxes rise from $4750 per year today to $19,500 per year at the end of a 30 year loan!

When you consider the scale of differences that large corporations face, owning factories and big office buildings, suddenly these costs are big enough to cause someone to think twice about moving to Houston. Why would a corporation relocate here from elsewhere if they need a large, expensive facility to do business in? Yes, Texas has other tax advantages, but do they completely offset our property taxes? I don’t think we have as big of an advantage as we like to think we do.

<h2>Final Thoughts</h2>

My purpose in writing this today is just to put the thought out there and let people mull it over. When we in Texas compare ourselves to other states (especially California), we take a lot of pride in declaring how much more affordable we are. We often credit our state governments with being much more efficient, and declare that our tax burden is much lower than theirs. “We don’t have those wasteful government programs that they do,” we like to say.

Is that really true? For all the city services and big bureacracy that exists in Los Angeles, they are collecting less tax on the average property than Houston is. When you consider California’s tax value protections (your taxes are fixed at the price you bought the home for – no appreciation impact), it’s clear that Los Angeles is collecting a LOT LESS in taxes than Houston is. So how are they paying for all that stuff that they do?

I don’t know the answer to that question. Clearly the state must make up some of the difference through distributing income tax revenues. And clearly, California has major problems and I don’t think we want to imitate them. But is our government really efficient?

I think the answer is no. It isn’t. In fact, I have this bad feeling that we’re actually even more wasteful than the people on the left coast. Texas collects extraordinary amounts of tax income from its citizens, and the electorate here votes strongly against most government spending programs. But we’re still in budget trouble. How is this possible?

The most obvious explanation I can think of is that our government is wasting more money than theirs is.

If anyone wants to help me out with this one, I’d be glad to hear what the difference in Houston’s budget and Los Angeles’ is. But if I’m right, and we really are just wasting a lot more money than the left-coasters, then the question I have to ask is can we afford to keep doing that?

So, that’s all the food for thought I can offer for one day. I’m really interested to hear what everyone else out there has to say about this, so start things off by leaving your comments!


Posted: Monday, June 22nd, 2009 at 12:35 pm
Categories: choose, featured, live
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22 Comments

  1. Thanks for the info! I was talking about this topic with a couple of coworkers this morning (specifically DC vs. San Diego) but I’ve never done any research on it so I wasn’t sure which place is more “affordable.” They were saying they thought DC was more affordable, but I don’t know. Definitely something to look into.

    • Thanks Lauren! It would be awesome to see a major city vs major city comparison, but the problem is that property taxes are so hyper-local that it can sometimes vary noticeably just from neighborhood to neighborhood within the same city! Also, every place calculates and assesses taxes so differently, it’s hard to determine what the actual bill is going to be without doing a ton of research (these 4 examples took a lot of time!)

      If you care to share a property tax bill from SD and DC (if you can find one) we could calculate an effective tax rate and compare the cash flow difference it makes :)

      • I’ll let you know if I get around to the research (I know it took time!) and if I’m able to find anything worthwhile. ;)

  2. I’m currently in the same boat and I have to be honest, I was fairly shocked at how expensive some of the housing is here in Houston. I guess I was always under the impression that Houston was this place where real estate was a steal but I’ve learned in my short time here that, at least in desirable areas, housing is really not that cheap.

    Now granted, Houston seems to have a lot of cheap undesirable housing (at least in my mind). I suspect this is what drives down the average price here. But those cheaper prices give you either crime infested squalor or un-walkable sprawling isolation with an unbearable commute.

  3. Well said, ARP, well said.

  4. Your numbers for Houston are somewhat misleading in that they don’t account for the impact of the homestead exemption. I looked up a house near mine that appraised for $102,000 in 2008. The taxes for the year were $1,895, a significant difference from the $2,500 you mentioned.

    Houston taxes also cover garbage collection, where Seattle charges $45 per month to collect the same size container. That’s another $540 per year, making the difference smaller.

  5. Thanks for the feedback Ross!

    You’re right, I didn’t factor in exemptions. The reason I didn’t is because I wasn’t able to find very good information about the exemptions in the other cities, so I didn’t include it on any of them. The exception is the Chicago example, because that one is so ridiculous in the first place, and every example I found showed that exemption as an automatic deduction (like the IRS standard deduction) that’s taken out on your behalf automatically as part of the formula.

    Let me also be clear in stating that I’m aware the tax rate varies noticeably around the Houston region, and every other Metro region in the country. If you’re not in the City of Houston your tax rate will be very different, probably about 0.6% less. (That difference is nearly the exact amount you quoted me for the nearby $102k house, do you know if that one happens to be outside city limits?)

    Of course, on the other hand, if you’re not in City Limits you’re probably in a MUD, and those can be all over the place.

    In any case, my point here is not to argue the merits of living in Houston over any other city. I think you choose where to live for a lot of reasons, and the price of housing – honestly – is one of the smaller reasons. Also, I’m not trying to examine the total tax burden of the city – there are huge differences between tax structures in every part of the nation, and I know that Houston, and Texas generally, has a lower tax burden than a lot of other places.

    What I AM trying to illustrate, however, is the effect that high property taxes have on home values. Effectively, high tax rates reduce purchasing power, and therefore artificially lower the marketable value of a home. The reason I think this is important is that this makes a BIG dent in the price of housing – because the REAL price of housing includes the property tax.

    I think this is worth noting when the conversation about Houston having cheap housing comes up. Houston’s list prices are low, but our taxes are very high, and the total cost of living probably isn’t as low as we like to think it is.

  6. Thank you for the clear analysis, but houses of similar cost are very different sizes in these markets. 500K will buy a studio in Manhattan, or a swankienda on a golf course in greater Houston. Lots are much bigger on average here, I wonder if your calculations accounted for Price per Square Foot costs how the cities would measure up?

  7. Thanks for your comment, Scott!

    I didn’t make any attempt to compare the size / quality differential in these cities, because it’s pretty hard to compare. What I’m interested in here is the ability to make a purchase of property, and my conclusion is really an obvious one: higher taxes mean lower purchasing power.

    Now, the reason I think this is important is that a lot of the time people argue: “Houston housing is so cheap because ______________”

    What I’m saying is:

    1. Houston housing isn’t as cheap as you think. As I pointed out above, someone who can afford a $200k home with taxes here in Houston would theoretically be able to buy a $275k home for the exact same payment if there were not taxes.

    Now, there are taxes everywhere, so it’s not like you can avoid them. But my point is that property taxes are higher here than in most places. Which leads us to the next point…

    2. High taxes reduce purchasing power. Therefore a significant reason that Houston homes LIST for so much less than homes in other parts of the country is that the taxes are consuming cash flow that could otherwise go into equity.

    Now, this difference, BY ITSELF, does not account for the difference in housing prices between Houston and other cities. Geography is a much bigger factor – if you’ve got unbuildable cliffs, mountains, rivers, or lakes, then land is more scarce and therefore more valuable. Demand is a huge factor – the more “popular” a city is overall the more competition there will be to live there (this is almost exclusively the reason New York is so expensive – wealthy people from all over the world are willing to pay a premium to own a flat in New York). Supply is a big factor – over-regulation will artificially reduce the available housing stock and therefore increase prices.

    It takes all of these factors combined to figure out how much “stuff” you get for your money. In Seattle, for instance, you pay more because more people want to live there. They want to live there because they like not needing air conditioning (though I don’t understand how the cold wet winter isn’t a bigger problem), and they want to live there because of the beautiful scenery. Part of the scenery is the lakes, the sound, and the mountains that really limit the supply of developable land. So, this popularity and scarcity combine to create much more valuable land than we have here, and thus people tend to live more compactly.

    But the reason the tax stuff mattered enough for me to take time to write about it, is that I’ve been in the Real Estate Industry for years as a professional and years before that as a student and curious onlooker, and it only recently occurred to me HOW MUCH of a difference the tax structure makes in the ability to finance property. This should have been obvious all along, but I never fully realized what a big difference it makes. At the end of the day, you may be getting more “stuff” for the price as compared to another city, but you’re not getting as much dollar value of loan as you would in a place with lower taxes.

    Does that make sense?

    Again, thanks for your feedback!

  8. “Lower taxes” does not equal “more affordable.” Washington does not have an income tax, but the business tax hits almost everything, and yes, that is reflected the prices of everything.

    Texas does not collect extraordinary amounts of tax from its citizens, as you claim. In fact, data from the Tax Institute shows that the tax burden in Texas, as a percentage of income, is in the lowest tier in the United States (http://www.newgeography.com/content/00754-local-and-state-tax-burden-maps).

    • John,

      What I mean is that Texas collects an extremely large sum of money in the form of taxes. The City’s 2009 budget shows they expect to receive 3.2 billion dollars this year in taxes from all sources, almost 900 million dollars from property taxes. That’s a huge, huge, huge amount of money.

      Now, of course, the City is a huge thing, and it takes a lot of money to run it. I’m not arguing that Houston collects disproportionately more taxes than other cities do, because I don’t know whether or not they do. It seems, at first glance, that the CITIES in Texas collect more taxes than in other places, but in other places the STATE collects more taxes and spends more on things we think of as CITY responsibilities.

      I don’t know, on the balance, whether our cities are using our tax money more productively or less productively than other places.

      So, I’m not trying to say that Houston is ruthlessly pummeling its citizens with taxes. The school districts on the other hand…

      But seriously, my point in this post is not that Houstonians are over-taxed in total, merely to examine the significant impact that our property taxes have on the market value of our homes.

      This is clearly a major contributor to the list-prices for homes in Texas being lower than in many other states. The ways in which we choose to collect taxes distorts the market, and I find this particular impact to be interesting because I think people are overlooking it when they talk about the “low price” of housing. There are a lot of factors that contribute to the low market price of housing in Houston, and this is a big one.

      That’s my one and only point in this article.

      Thanks for your comment and for the very useful link!

  9. I agree with your point on tax collection; in fact, while I enjoy the lower taxes I pay compared to when I lived in DC, Massachusetts, and Virginia, I think it’s a bad system. For one: our taxes are highly regressive. With property tax in particular it’s a problem, as people on fixed incomes (such as retirees) and low income people can easily be taxed out of their homes.

    For another, it tends to magnify both prosperity and wealth. I grew up in Connecticut when it had no state income tax; it also had no county government. So functions like schools, police, and fire were funded largely by property taxes, in a state where jurisdictions were small (the largest city had about 150K people at the time; towns of 20,000 people ran their own school districts).

    What this meant was that the cities, with high infrastructure costs and more low income people tended to degrade terribly, and got caught in a cycle of raising tax rates on declining-value property in an attempt to simply maintain infrastructure and basic services. And so in one of the wealthiest states in the country, you had cities like Bridgeport, New Haven, and Hartford getting poorer and poorer next door to wealthy towns. And yes, that has an impact on people outside those cities – the state’s once-thriving urban areas have basically been wiped out.

    Massachusetts had a good system. Much of the quite moderate income tax (5% when I lived there) went into a state “local aid” fund for redistribution to towns and cities. It was, basically, the way that the towns around Boston (and other cities) helped pay for the infrastructure (which they used extensively, and which was responsible for the economic vitality of the region). I think this was much better than DC, where exorbitant income tax made up for low property taxes, but there is a special situation there in which there is no regional taxing authority of any kind, and about 70% of the income earned in the city is paid to people who live in neighboring states and thus not taxable by DC (and the VA and MD Congressional delegations make sure it stays that way).

    There are a lot of mixtures of taxes that can be considered, most of which work better than what we have in Texas. The market distortion is an interesting aspect to it that I hadn’t considered. Thanks for the clarification.

  10. Hi Andrew,

    I frequently compare to myself the respective merits of the Houston and Seattle real estate markets and one comment you made that I find the most fault with is that people pay more in Seattle because they *want* to live there and the beautiful lakes and the mountains and the amount of developable land being scare and so forth.

    That is the sort of crap I would expect to hear from real estate agents and condo marketers. And I own in Seattle. That line of thinking makes no sense when you consider that over 2 million people live in the city of Houston; if they didn’t *want* to live here; then they probably wouldn’t–but Houston hasn’t seen explosive (and in fact, unmerited) real estate appreciation as a result of Houston being a desirable place to live.

    As someone who lives in the Puget Sound I can attest that the scenery *is* beautiful–that is for all ten days of the year that it is sunny and you are able to see it. The other 355 it is a cold and wet and utterly sloshy place to live, with mountains about as visible as Houston’s. ;)

    In reality, a great study was done by the University of Washington–the link to which I don’t have at the moment–which has shown that the biggest source of appreciation in property values in the Northwest has been directly caused by restrictive development codes and so-called “smart growth” policies that have been enacted by local governments here.

    Moreover, there is PLENTY of developable land here within say…a 30 mile radius of downtown Seattle (I say 30 miles because that’s roughly about how far it is from downtown Houston to the outskirts of development in Fort Bend county)–people just don’t want it to be developed; nor do they want to develop the transit solutions to meet the needs that such a population boom would require–which is a whole other can of tax-wasting worms that plagues Seattle…

    anyway, just thought I’d throw these commments in; not to knock anything that you’ve said in terms of the tax analysis which is interesting, but not as useful once you do consider all the variables which you and others have already pointed out…

    • Bobby,

      I think your point is totally valid: excessive regulation absolutely creates artificial scarcity and drives up prices.

      I have to say, what I appreciate most about your comment is that you’ve included a number of contributing elements to Seattle’s housing prices. That’s really all I wish for people in the greater Houston conversation to keep in mind: there are a lot of factors that contribute to the final price, and anyone who says “it’s cheap because of X and only because of X,” is full of crock.

      Thanks for your feedback – and BTW I quite enjoy your blog. Congrats on graduation!

  11. Hey Andrew…
    This is impressive, but your analysis seems to be much ado about apples and oranges.

    You might consider running your analysis on the basis of what you’re buying rather than what you’re paying… in terms of price per foot for the homes, and services purchased from the municipality.

    It’s also not clear from your numbers whether you’re amortizing the taxes. As you know, the taxes aren’t necessarily part of your mortgage, but as often as not a household expense to be paid annually. You might also consider the cost of insurance… that, like the tax burden, is one that cannot be avoided, will impact your buying power, and varies dramatically.

    If your point is merely that property taxes as a percentage of a $100k home are higher in Houston that LA, NYC, or Chicago… well fine. But what does $100k get me in LA, NYC, or Chicago? And what do my taxes get me in those cities?

    Anyway… the piece is interesting, and makes for interesting water cooler conversation.
    Thanks.
    John.

  12. Right on the Money! (posted on other blog)

    Forget no state income tax, what if you don’t live in the state, or unemployment, the person is talking about houston home values, ding dong.

    There is more to ahouse than the square footage, there is weather, proximity to jobs and wealth, zoning, schools,etc

    This is called the “Free market value” of the house, if people want to buy more for a smaller house there could be other reasons,

    Houston property taxes, aahh, that’s why its cheap,
    Home appraised at $300,000= 7500$ in taxes plus $1300 for insurance and additioanl 2400o for electricity.

    Okay additional 3% of house’s value, lets assume inflation is set to zero.

    300,000 house in 5 years loses $300,000 on this alone.

    States with no income taxes such as tennesee have areas with low property taxes.

    Case Williamson County Tennesee, a $300,000 house in Houston may cost $400,000 there, most income is not taxes , tn gets a small portion for dividens and income.

    Tax: 0.6% of market value – $2,300 , insurance $600, electricity $1,000/year.

    You lose $4,000 a year instead of $10,000 a year but the home is $4,000.

    Seattle same case : $500,000 home = 4000k in taxes, $600 insurance, and $1000 in electricity, granted homes are smaller but that’s the free market , weather, jobs, zoning,other factors.

    California is a special case because of prop 13, by the way not everybody has a mortgage on their home,

    High property taxes and maintenance help avoid speculative bubbles, because you have to pay your tax if you decide to keep and not sell, you neeed capital to do so, due to h ouston’s market new construction and lack of zoning comb ined with this make a home almost like a car or computer that depreciates in value although it may still functionally be sastistifactory and is not the same thing value wise or material wise.

    More on this , but the author is right.

  13. Looks like Houston’s market is coming back according to a report just published recently. The average price of homes for sale in Houston have shown a recovery in the last 6 months with an average home price of $213,117 in the third quarter of 2009, despite a corresponding 2% rise in unemployment beginning the first quarter of 2009. Full article is on AOL Money and Finance: http://money.aol.com/article/houston-real-estate-market-recovered/740086

  14. Andrew:

    Your argument and conclusion that high real estate taxes cause lower property market values in Texas is overly simplistic and wrong.

    You fail to identify or analyze cause and effect. Are low market values for homes in Texas the result of high property taxes? Or, are high property taxes compared to market prices the result of low market values for properties?

    Unlike the other states in your comparison Texas does not have an income tax. Consequently Texas collects a larger share of taxes from property taxes. The result is that in Texas a median value home, which is probably occupied by a median income family, carries a higher share of the overall tax burden than a median priced home in a state where the tax burden is shared with income taxes. If you had included the income tax burden for median income households in your comparison, you would have seen that living in Texas is clearly more affordable than the other locations you used for the comparison.

    A proper analysis of the reasons for lower home values in Texas should consider other possible causes such as lower land and construction costs in Texas. You have not done any such thing.

    You say you are simply trying to “examine the significant impact that our property taxes have on the market value of our homes.” By failing to establish the proper cause and effect, you have simply failed reach a valid conclusion.

    I can’t help wondering if you were encumbered by some kind of anti-tax or anti-government bias when you began you analysis.

  15. AWESOME TOPIC!

    I am thinking of transferring to Houston from Florida and was amazed at how low the housing prices. I was amazed at what you can get for say $250K! THEN I just started looking at the Taxes and it hit me pretty hard. Approx $6000 a year WOW! That now brings it up to about where I am now in Florida. Go figure. It seems to balance out or come close. The value of the house in Houston is GREA, then I added $500 more a month for Taxes and then not so Great over all.

    Thanks so much for the interesting reading and I know its not exact but a great overview of the House value compared to Taxes.

  16. We own 2 houses in California yet we live and RENT in Texas…because I will not pay the ridiculous property taxs here in Houston. Our California property taxs are very low…thanks to prop. 13.

    • You do realize that your landlord has to pay property taxes out of your rent, don’t you?

  17. Super job! Thank you. I was looking for a comparison to Massachusetts which I expect are similar to NYC. I live in Tucson purchased my home for $440K and pay about $2100 annually … it makes me feel good to live in a state which has responsible taxation.

3 Trackbacks

  1. [...] of the country, and you’re not likely to pay much less. And with our high property taxes, you’re paying quite a bit more if you buy a home here that has a similar listing price as a home in a city with lower property [...]

  2. [...] Maybe this would be helpful? Property Taxes and Home Prices [...]

  3. [...] Compared to where? … Well, for one, compared to Houston, which is about 40% higher than here. Property Taxes and Home Prices If you read that, especially the comparison between 4 major cities, you will notice a relationship [...]

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