For the past several years real estate prices in my community, like many, have risen with a speed and certainty that has been a delight to behold. Now the government is getting even with vast assessment increases that will lead to steep increases in property taxes.
What's interesting about the projected tax rises is that they are discriminatory. And because they are discriminatory, the result is that rental rates are bound to rise.
In my area if your home appreciates in value with rocket-like grace you can be certain that property taxes will not follow the same trajectory. The reason is that to save political hides residential property tax increases are limited to 10 percent annually.
Ten percent annually is hardly cheap. Other local jurisdictions have caps as low as two percent per year, a figure very much to my liking. And 10 percent a year compounded over a decade means a 259 percent tax increase -- an increase which many owners are unable to afford.
One problem with the tax cap is that it does not apply to investment property -- that's where the discrimination comes in. If there are two identical homes side-by-side and one is rented and the other is owner-occupied the tax payments differ, even though there is no difference to the community in terms of road usage, school capacity or anything else; instead what we have is simply an artificial distinction, one designed to further inflate government coffers with as little political cost as possible.
If you want to limit the availability of rental homes, raising property taxes by absurd amounts is the way to go -- especially in a community without rental control but with "suggested" annual rent limits -- the most recent being 4.5 percent.
You don't need a degree in finance to figure out that if property taxes rise at twice the rate of suggested rent increases then owning investment property becomes less attractive with each passing year -- unless you raise rents to cover increasing costs. In effect, the by-product of discriminatory property tax policies is higher rents, rents justified by counter-productive public policies.
Local government does not build nearly enough affordable housing and every time a rental unit is sold and converted to owner-occupied status the situation gets worse. In effect, property tax policies are creating the very shortage of affordable rentals that every politician bemoans.
Moreover, those 10 percent tax increases may be acceptable for some residential owners, but surely that's not the case for people with fixed incomes or limited incomes. For them, huge property tax increases virtually assure that they must move to a lower-cost community.
The end result of discriminatory taxing policies is both bigger government and fewer people who can afford to rent locally. We're freezing out the teachers, nurses, tree cutters and plumbers that every community needs. The honest and trusted tradesman who fixes many homes on my street is a good example: He lives 80 miles away.
We can't do anything about changing home prices, but combine rising home values with slanted taxing policies and perhaps the public will figure out that we cannot afford ever-expanding government services.
The issue is not that government is somehow evil, rather government is simply a special interest and like all special interests it seeks more for itself. Discriminatory property taxes hide the true cost of government and discourage real estate investment -- two results which benefit the few at the expense of the many.
What to do? A five percent annual tax cap on all properties sure seems like a good issue for a referendum....