How property tax assessment limits drive away new homeownersYet another interesting post from Otis White's Urban Notebook at Governing.com. This one talks about how property tax assessment caps can keep out the new homeowners a city so desperately needs.
Welcome to Detroit - City to Homeowners: Keep Out!
The Detroit News recently published an article with this arresting lead sentence: “From a purely financial standpoint, buying a home in Detroit is a no-brainer: Don’t do it.” As the article explained, not only do homeowners in the city have to put up with the usual hassles of city life (lousy schools, spotty public services, a scarcity of groceries and drug stores, dicey neighborhoods and crime), but they also get socked with property taxes that are often double what they’d pay in the suburbs. The article focused on one man who had moved from Chicago and was ready to buy a house in the same neighborhood as the mayor’s residence, with a nice view of the Detroit River — until he learned the taxes on his $290,000 house would be $9,700 a year. “There was no way I could afford that,” he said, opting instead for a more expensive home in the suburbs with lower taxes. For a city as desperate as Detroit to bring back middle-class families, crushing taxes (and higher property insurance rates) work like a giant keep-out sign, the News said. “Young professional couples can afford a $250,000 home and they can choose to buy anywhere, but when they look at Detroit and run the math, it puts Detroit at a competitive disadvantage,” one lawyer who lives in the city said. Making things worse, Michigan has a harebrain tax-limitation law that artificially restricts assessments on homes until they are sold. Obvious result: The tax burden is shifted to recent homebuyers, punishing the very people the city most needs to attract. Hence, the staggering tax bill for young middle-class families.
Footnote: So if simple-minded tax limitations aren’t the way to help homeowners, what is? Two things: Much greater commercial development, which strengthens the tax base and eases the burden on homeowners, and drastic downsizing of Detroit’s bloated city government. As leaders there often point out, Detroit has a government designed for city of 2 million supported by an impoverished population of 900,000.
Lessons for Houston? The obvious one: adjust overall tax rates rather than assessments. As far as his recommendation to strengthen commercial development to boost the tax base, I believe that is directly related to one of my pet topics: mobility. Businesses need easy access to customers and employees. If they don't have it, they'll move. Sure, transit can be a small piece of that, but the real foundation of most mobility is the car (at least in Houston and most newer sunbelt cities), meaning investments in freeways, tollways, and fast arterials.