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.

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.

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.

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!

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…

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.