Property Tax Reappraisals Coming Soon

[Bridget Conant]

Hey folks, get ready for property tax reappraisals!

Per state law, all property is reappraised and reassessed every three years in Ohio. 2018 is a reappraisal year.

https://fiscalofficer.cuyahogacounty.us ... tment.aspx

Get ready for your property taxes to increase. The “hot” property market and increased sales prices WILL impact you, whether you recently purchased your home, or not.

Many of the new buyers may be shocked at the increase since most recent sale price will be used as market value. However, even if you’ve been in your home 20 years, your neighbors’ profit on their home sale will impact your home value, and taxes.

In addition, the schools will no doubt be looking for a levy soon.

Hang on to your wallets!

[Tim Liston]

The property tax rate here in Lakewood is around 3.2%. For comparison, today’s “safe” rate of return on one’s investments is around 3%. It requires a little math to understand, but whenever the property tax rate exceeds that which you can earn reasonably safely, the endless “perpetuity” of property taxes is worth more than your house. That’s where we’re at today in Lakewood before any new levies. Let me repeat: the property taxes you now pay are worth more than the house you pay them on. And it also means that Lakewood helps itself to every last dollar of the increased value of your home. And then some. Heinous.

So when Bill Call asks (in another thread) “At what point do property taxes become so high that the tax is really confiscation?” the correct answer is “about ten years ago” when interest rates went down so much. I know it’s not obvious that lower interest rates raise the “cost” of your property taxes, but they do, a lot, by making the present value of the future property tax payments worth a lot more.

Here in Lakewood we’re getting to the point Bridget mentioned in that same post. As reality sets in, higher property taxes will reduce the value of our properties just about dollar for dollar. Look what’s happened in Shaker Heights with their 4% rate. Property values have flat-lined there across the board, at best. That’s where Lakewood is heading, and the pace will quicken with the upcoming reassessments. And the $10,000 limit on so-called SALT deductions will make it even worse, especially on Lakewood homes valued at over $200,000 or so. Within the last year three houses on my small street sold for much less than their recent comparables. As a result the AVM appraisals on my house have dropped about 10% or so in just the last six months. Is that a situation that attracts higher-income people (and their taxes) to Lakewood? I think not.

But the one good thing about property taxes is they are local, and therefore avoidable. You can move out of a lower-tax area without going completely ex-pat. Or not move into a high-tax area. Presently, residents are leaving high-tax “blue” states, or choosing not to move into them. Illinois, New York, Connecticut, New Jersey and California are losing residents in record numbers. I just read somewhere that it costs around $2500 or so to rent a particular U-Haul from California to Texas. The same rental from Texas to California is about $1200. That’s because so few people move from Texas to California these days.

If Lakewood continues on its current trajectory, its loss of residents to lower-tax cities and townships will accelerate. Not because people move out, but mostly because people are deterred from moving in. A city struggling to maintain 50,000 residents for the next census, or trying to keep property values at least stable, shouldn’t risk that. Not in my judgment.

[Bridget Conant]

This article asserts what Tim Liston is saying:

https://www.google.com/amp/s/www.curbed ... rices-drop

And this:

https://www.google.com/amp/s/www.ilnews ... f.amp.html

[Tim Liston]

A few days back the Chicago Fed finally proposed their “solution” to the massive debt/deficit problem in Illinois: a 37% increase in property taxes. Their report, entitled “How Should the State of Illinois Pay for its Unfunded Pension Liability? The Case for a Statewide Residential Property Tax” can be found here (click here). Specifically, the Chicago Fed proposes 1% increase in property taxes statewide, raising total property taxes from 2.7% to 3.7% on average.

Don’t bother with the report. Here’s the money line:

”New taxes wouldn’t affect people thinking of moving to Illinois. While they would have to pay higher property taxes, that would be offset by not having to pay as much for their new homes. In addition, current homeowners would not be able to avoid the new tax by selling their homes and moving because home prices should reflect the new tax burden quickly.”

FINALLY SOMEONE TELLS THE TRUTH!

The eggheads at the Chicago Fed know darn well that higher property taxes will reduce, perhaps almost dollar for dollar, the value of Illinois homes. Their 2.7% is already the highest statewide average in the country. And they know darn well that a 1% increase in property taxes is tantamount to confiscating a large portion of the value of Illinois homes. My math says that a 1% increase in property taxes steals at least 20% of the value of the property. And they know darn well that there’s not a damn thing Illinoisans can do about it, short of selling their homes and moving out-of-state.

Mind you I think the Chicago Fed is wrong about one thing. They’re wrong when they assert that “home prices should reflect the new tax burden quickly.” It won’t, and they know it won’t, or there would be no point to the property tax increase in the first place. It will be a slow and painful reduction of property values, something like we are seeing starting to take place in Shaker Heights with their 4% property tax.

Which is what we will see here in Lakewood if property taxes go higher than they are now. And the presumed increase in the value of our homes over the last 2-3 years? Consider it gone, eventually, after they raise the assessed values accordingly. Every last dollar of it will be taken from you starting next year. The Chicago Fed knows it. Bridget and Bill know it. Cuyahoga County and Lakewood know it too, they’re just not saying it.

In a mostly-unrelated tax topic, remember that with the Federal tax cut passed last year, taxable incomes go up, but the Federal tax rate goes down. Many states, including Ohio, base their income taxes on Federal taxable income. So for states with an income tax, that means one of two things, either (1) keep the extra income tax revenue as a windfall, or (2) pass legislation reducing the tax rate, so that the Federal tax cut becomes state tax neutral. Idaho recently did the latter. Not surprisingly, blue states are very quiet about it. It will be interesting to see what Ohio does, or doesn’t do. My guess is you’d better email your payroll department and ask them to withhold more for Ohio income taxes, or be ready for a surprise next April.

[todd vainisi]

So Tim... you say that we are screwed if the home prices go up or down and that we are also screwed no matter what at our current property tax levels.

I find it very strange to complain about rising home values. Or are you only complaining about the tax paid on your home's rising value?

[Mark Kindt]

I appreciate Mr. Liston's analysis and commentary on this topic.

In fact, he may be understating the problem. To the extent that increased property taxes have an inverse affect on property values, there is a hidden economic incentive not to invest in the repair, upkeep, and improvement in homes.

This impact has been identified in the market study prepared for the City of Lakewood by its consultant, 4ward Planning (on the City website) where it describes excess rental units that are not in service.

Finally, I will also note that public subsidies or tax incentives provided by the City of Lakewood ultimately shift the tax burden to those taxpayers who do not enjoy these selective tax advantages. (e.g., Clifton Pointe and One Lakewood Place). Some taxpayers are favored; some are not.

[Matthew Lee]

The property tax rate here in Lakewood is around 3.2%. For comparison, today’s “safe” rate of return on one’s investments is around 3%. It requires a little math to understand, but whenever the property tax rate exceeds that which you can earn reasonably safely, the endless “perpetuity” of property taxes is worth more than your house. That’s where we’re at today in Lakewood before any new levies. Let me repeat: the property taxes you now pay are worth more than the house you pay them on. And it also means that Lakewood helps itself to every last dollar of the increased value of your home. And then some. Heinous.

Hi Tim,

I may be a bit slow on this, and am definitely not a real estate expert, but help me understand why this is heinous.

1) You actually get something in return for the property tax. It is not a "take my money for nothing" scenario. I get police, fire, schools, library, roads, snow removal of said roads, trash pickup, etc. I am not paying 3.2% into a black hole.

2) If my house goes up in value, it still goes up in value irregardless of the property tax. Whether I pay the property tax on my house, or someone else does, it still is paid. The value of the actual house takes this into consideration.

I understand that taxes are a necessary evil, and I certainly wish I didn't have to pay them, but calling them heinous is a bit over the top, no?

Thanks!

[Bridget Conant]

The point being made is that higher taxes are coming and that those increases will work to hold down housing values. So you will both pay more tax, and you can’t sell your house for as much.

[Matthew Lee]

The point being made is that higher taxes are coming and that those increases will work to hold down housing values. So you will both pay more tax, and you can’t sell your house for as much.

Why is this a given? You state it like it is a fact but isn't it possible that the increases don't hold down housing values? Somehow other places have high taxes and people still buy houses there (California, Washington, New Jersey).

[Bridget Conant]

Matthew

There are several links above in this thread that explain the effect of increased taxes on home prices.

[Mark Kindt]

There is a "crunch" on the American middle-class and an even bigger "crunch" on recent college graduates. There are numerous factors at play. They have been widely chronicled in the media.

Chief among them is the fact that the Great Recession of 2008/2009/2010 was a total economic gut-wrench where many average Americans lost homes, savings and retirement investments. This had and still has street-level effects.

I know many people whose lives will never be the same and who were squeezed out of their homes by foreclosures that were depression-level severe. I also witnessed extensive job losses, including my own.

Ten years later, the recovery for ordinary people is spotty at best.

Many will never have full-time salaried jobs again. Their incomes remain seriously deflated against normal career expectations. Even after a decade.

Lakewood has many fine attributes as a place to live. It is enjoying a modest bubble in real estate values. Like all bubbles there is nothing to sustain this other than cheap debt.

Lakewood has also embarked upon some reckless and feckless policies that have eliminated valuable public assets and their associated long-term public revenues.

It has committed to the kinds of public subsidies to developers that come with added costs to taxpayers.

Mr. Liston presents some analytical points that have merit. Most of us really don't "own" our homes. They are heavily mortgaged and heavily taxed. You can only press your finger into a balloon so hard until it pops.

Naively, most decision-makers simply do not understand the depth of the Great Recession, its enduring effects, nor the general "crunch" that most people feel.

[Stan Austin]

Mathew-- I would point out that property taxes largely fund the schools, and, to a lesser extent certain County endeavors. The services that you mentioned are funded by payroll taxes. Over 1100 jobs have been eliminated by the forfeiture of Lakewood Hospital. That business entity has gone up into thin air.
Stan Austin

[Stan Austin]

Oh-- I almost forgot---the City has valued the property at $1. Kinda zeroes out that as a source of revenue. Ain't Voodoo economics great?!?!

[Matthew Lee]

Matthew

There are several links above in this thread that explain the effect of increased taxes on home prices.

Hi Bridget,

I read both of the linked articles, and maybe there are others I missed, but neither one of them actually specifically address increased property taxes on homes with a definite effect on home values. One article dealt with the overall tax reform, not specific to property taxes. And the other article dealt with Illinois property taxes keeping people away from Illinois.

Did I miss some other articles that might make me think Lakewood property taxes are so bad that nobody would buy a house here?

[Dan Alaimo]

I wonder how the board's recent instances of non-transparency and non-responsiveness (fitness center, Clinic clinic, superintendent selection process, etc.) will play out the next time they come to us for a levy. I've voted for every single levy since I moved here, but now I have reservations.