I Would Like the Value of My Home to Rise, While My Property Taxes Fall

David Schleicher's article, "The Great American Property Tax Freak Out," explores how many states have recently reformed their property tax systems to provide substantial tax benefits for owner-occupied homes. This shift in policy has transferred the burden of funding essential services, such as schools and police, to commercial property owners, including rental apartment buildings, as well as other local taxes and state funding primarily derived from sales taxes and income taxes.

Initially, homeowners might have welcomed the significant appreciation in their largest asset, homes, especially in the suburban areas post-COVID. However, as property taxes are considered wealth taxes, the surge in home values has sparked political discontent among homeowners, pushing for policy changes that often result in higher property tax rates for commercial property owners who have experienced declining values during the same period.

The article highlights the broader implications of these property tax reforms, which include a move towards redistributive taxation, reduced stability in local government funding, and stricter zoning controls, while ultimately leading to higher housing costs. This wealth transfer benefits current homeowners who have already witnessed substantial increases in their net worth in the post-pandemic housing market.

The article delves further into the local variations in public finance across the United States, emphasizing that property taxes serve as the primary source of revenue for local governments, financing schools and law enforcement. The push for lower property taxes is often driven by voters who fail to connect the dots between reduced taxes and the potential decrease in local public services.

Additionally, the article discusses the inherent challenges of wealth taxes, such as the inability to immediately pay higher taxes as one's wealth increases, which disproportionately affects older voters with substantial accumulated wealth, particularly in the form of home equity. Lastly, the article explores the paradoxical situation where reducing or abolishing property taxes would lower the cost of homeownership, leading to a rise in market values.

Thus, despite the perceived benefits of lower costs for current homeowners, the long-term consequences may come at the expense of future homebuyers and potentially exacerbate the affordability crisis.