First of all, this is a fantastic site – I just came across it today for the first time (I’m in San Antonio).

With respect to taxable values, asking prices can be a bit misleading. For instance, your example (listed for $15.2mm) may include lots of design work, environmental & other due diligence, carry costs, demo & abatement costs, etc. These costs can really add to a land basis (up to $20/sf). Although, from the looks of things, that asking price appears to have more to do with a bad purchase during the recently-passed run-up.

The only way around the current appraised value conundrum is for TX to pass mandatory disclosure laws, requiring property owners to disclose the precise purchase price for property at the time of acquisition. Otherwise, local appraisal districts have to guess at values using crappy information (and risk litigation if the owner wants to fight). It’s a bad system that really stacks the deck against the public.

Speculators are, unfortunately, an unchangeable part of the real estate development business. They contribute nothing, and add significant costs to projects. But there’s really no way to eliminate them from the “process”, even if you tax the hell out of them.

I actually believe that cities do a disservice to the redevelopment of urban neighborhoods by making massive public investment prior to a critical mass of development (of course, we can argue endlessly about how to define “critical mass”). What I mean by that is speculators and obstinate/unrealistic long-time property owners (who are actually worse to deal with than speculators) are the people who see most of the benefit of the public monies being spent.

For instance, in SA, we just spent $86mm extending the Riverwalk north of downtown to the Pearl Brewery (currently being redeveloped). A great project, to be sure, but what do you think happened to the owners’ opinion of their values now that their property is adjacent to a beautiful public amenity (as opposed to an overgrown drainage ditch)?

So the public spent the money, which will ultimately create exponential property value increases for the existing owners. But those higher values make it even tougher for developers to make projects financially viable. And when projects are “on the verge” of being financially viable…….we all know that design quality starts to suffer.

Sorry to rant – again, a great website and good discussion.

Chad.

I see your point about creating loopholes.

What about assessing the tax retroactively, much in the same way they do when land looses its agricultural exemption?

Correct me if I’m wrong, but as I understand it when land is converted from agricultural to some other use the tax for the last five years is reassessed minus the ag. exemption, therefore a big load of taxes end up being due.

The mechanism is already in place for that, so we could easily collect back taxes on a property at it’s sale value.

The downside I see to that is that it’s hard to tell if something happened that really did increase the value of the property in less time than that – for instance if a lot has previously been surrounded by mostly other vacant lots, but now it has two skyscrapers beside it, then obviously the value has changed a lot in a short period of time.

Anyway, it’s an interesting idea, so keep thinking about it.

Well, if we were to somehow tax based on listing prices as well, we’d also probably have to have some way of regulating that – because given what you are suggesting, the seller thinks their property is worth $0 when it comes time to pay taxes on it and will try to find loopholes in your system. I mean, correct me if I’m wrong but there is nothing to prevent me from listing my property for $1 million and then saying “No thanks” to the first bidder that offers me that – “I have others interested that might outbid you” – as we saw in the California real estate bubble, houses were routinely selling for 125%+ of list – but I don’t even have to have any other bidders, I could just say “No – I don’t feel like selling today”.

So one way or another I think you are looking at the sales price being the key determinant in the tax rates, but I suppose if you wanted to look at the list price as well, you could do that – but either way involves some degree of government regulation to ensure transparency and that people are not cheating the system – for instance if the owner rejects an offer at list price than the tax appraisal automatically goes up 10%, or whatever. Without that, your suggestion might just incent the owners in Midtown to lower their sales price by $5 million with no intention of actually selling at that price, and then we are right back where we started.

Also, remember – the government would not have to “estimate” so much if the “free market” would just report sales prices transparently to them. A key to a good free market is transparency, and right now in Texas property dealings we do not have that – and it’s not government’s fault – it’s people (and realtors and agents who benefit from their knowledge in the current power structure) who don’t want property dealings to be public record – for whatever BS reason.

The light rail in midtown is already in a TIRZ. How’s that working out? Well, the TIRZ has been spending lots of money rebuilding street and sidewalk infrastructure. The sidewalks they improve to a more urban style with wider paths with benches and trees.

A current project is the McGowen reconstruction. A previous project is Elgin through Midtown.

I slightly disagree with you here – the ideas is not to raise taxes, it’s to assess the taxes we currently have realistically. We don’t need to throw even more subsidy money at speculators, that just rewards them for their behavior.

As far as credits for affordable housing… there may be a time and a place for that, but I’m not sure that it’s needed here.

@ Mike

I think you’re exactly right, and the step you’re suggesting (making the sales price the value baseline automatically) should have been taken a long time ago. That would certainly help keep prices down.

My thought is, however, I’d like to find some way to discourage ‘flipping’ land – buying it with the deliberate intention of reselling it without even touching it a year or two later for 10x the price. That activity makes a few people rich to the detriment of the rest of the city.

Now, I can’t think of any reasonable way to regulate it – I mean, what if someone buys a lot with good intentions then finds themselves forced to sell for some good reason, it’s not necessarily greed that’s motivating them.

The issue is when speculators lock up a huge area of town (Midtown along Main St.) and then all hold out for these insane prices. How can we encourage them to hurry up and sell?

Your suggestion to base the taxes on the sale price would certainly put a real ‘check’ on the escalation of existing structures, but with vacant land people are already expecting the appraisal to skyrocket when they build on it. With residential I can see there being increased price sensitivity (since there’d no longer be a way to pay tax on a value lower than the sales price), but I don’t see the same degree of impact on commercial development, since the developer would usually continue to own the improved property for a while after acquisition and development.

So, can we either apply the taxes on the real value of the land (it’s sale price) while it’s being listed, or retroactively after the sale? I don’t know how it would work, but as a city we should be looking into this.

I’d like to see our system rely more on the market to determine values, and therefore taxed land at whatever the seller thought it was worth rather than some government produced estimate. The closer we can get to that, the more we give people a reason to price their land rationally if they want to sell it.

Bottom line – if they are listing that property in Midtown for $15 million, then when the sale occurs the sale price would be transparent, and that becomes the base point appraisal for that property and would also be used in all comps for that neighborhood. The expectation that you could pay taxes on only $5 million would be gone. My guess is this change would knock millions off of the ultimate sales price for the Midtown property.

I’m guessing this would ultimately have a benefit for denser TOD, because instead of paying taxes on a $1 million townhome or home near a rail stop (instead of the present distorted system where the owner is probably paying for an appraised value of $650k), more people will be encouraged to pay for denser and slightly smaller properties with a slightly lower tax burden.