The Observation Deck

Brian Essi says: “I keep telling my wife that we will not be able to afford to retire and stay in our home in Lakewood and still do the things we want to do…. My house in Lakewood has been the worst ‘investment’ of my life.”

Mine too Brian, far and away. If we had not purchased my Lakewood home in 1995 for $265,500 (a steal even back then for a home on my street), and instead invested in a mix of financial assets which are not taxed at 3.225% a year, we’d have $1.9 million that we could sell at the touch of a button. And it continues to be a terrible “investment,” costing us $11,000 a year in real estate taxes going forward. The only people who think homes are a great investment are Realtors™.

Michael Gill says: “My point is that comparing the tax rate of one densely populated, 100+ year old inner ring suburb without an industrial base with the average tax rates of entire states --ex-urbs, rural towns and all--doesn't really make a useful comparison.”

Michael I disagree. We moved here because we like Lakewood. And particularly because we have lake access. We’re here still for the same reasons, and because of simple inertia. But we could live lots of places. We don’t have to live in a densely-populated, 100+ year old inner ring suburb without an industrial base. In fact virtually everyone in Ohio does not live in Lakewood, and they are just as happy as we are.

(And by the way Mike, thanks for your kind note on my previous post. The thought of “de-modeling” a house so as to increase its value is obviously absurd, and suggested mostly in jest. But not entirely so. Others have noted that remodeling a home here is punishable by greatly increased property taxes. So why can’t the opposite be true?)

[deadhorse]

The average property tax in Ohio is 1.57%. Lakewood is 3.225%. On a $200,000 home, the difference (1.655%) is $3,310 a year. Right now my Schwab money market funds earn 2.05%. (But not for long.) One would have to set aside $161,500 earning 2.05% to pay the $3,310 in Lakewood property taxes that exceed the Ohio average. A home in Lakewood costing $361,500 would only require $200,000 in an average Ohio locale. $361,500 buys a very nice home almost anywhere in Ohio, densely-populated or not.

Similarly, since Bill mentioned Westlake (2.157% property tax rate), on a $300,000 home one would have to set aside an extra $156,300 at 2.05% to buy one in Lakewood instead of Westlake. Which is to say a $300,000 home in Westlake costs $456,300 in Lakewood. $456,300 buys a very nice home in Westlake. Plus those who live in Westlake and work elsewhere pay much lower city taxes. Sure, you would have to give up the bar scene but you’d get two nearby hospitals and a high school with an IB program. And their mixed-use development is already in place and way bigger.

Chronically low interest rates change everything! My wife and I lived in a rental in the Clifton Lagoon for five years before having our beautiful daughters. They’re out of the house now. The daughters that is. Thankfully my wife stuck around. We’d both like to move back to the Lagoon, and we can easily afford a home down there. But I simply cannot justify paying the property taxes AND taking the risk that those same taxes will someday greatly diminish the value of the home, which I believe is inevitable. The fact is, those Lagoon homes and the homes up here where we now live, they are languishing. Two homes on my street went on and off the market just in the last year, unsold. The one home now for sale in the Lagoon has been on the market for over a year and its price cut 3-4 times. The property taxes, coupled with chronically low rates of return on saved money, have deterred a giant tranche of potential buyers. Young families in particular. $20,000 a year and up in property taxes, which are no longer even tax deductible under the new tax law, kill the deal. Simple as that.

[/deadhorse]

Just move to Avon!

Property taxes are WAY lower.

The income tax credit for working outside the city means you only pay an addition .25% to Avon whereas in Lakewood you pay and additional 1% on top of whatever you’ve paid to your employer city.

And, they have a shiny new (but supposedly obsolete!) HOSPITAL!

https://www.cityofavon.com/212/Income-Property-Taxes

Tim, you can't live in a 401K, or in stocks or bonds. You have to have a place to live. This is the reason they are taxed differently. You pay for the services you expect in the place you live.

You can have a place to live by renting or buying, but any financial benefit is collateral. You know this, of course, but still compare houses as "investments" to other places a person could park money.

But back to my original response in this thread: If you move from Lakewood to another state because the average tax rate in that other state is lower, you will of course not pay the average tax rate in the new state. You will pay the tax rate of the specific municipality you choose. I'll wager you'd choose a place you like, and that your taste would not swing wildly away from what you have--close proximity to the lake, minutes from Downtown, pretty good schools, houses with character, good police and fire service. And if you find that outside of Chicago (which is in Illinois, which is one of the states you listed with a lower average tax rate than Lakewood's) I'll wager that your tax rate would pretty similar.

How about coastal South Carolina - water, great nightlife in Charleston. Average property tax rate is 0.52%

Or North Carolina - big growing cities like Charlotte, Raleigh, lots of tech, beaches, mountains, outdoorsy activities. Average race .81%.

No wonder there is an exodus from Cuyahoga County and the rust belt.

My oldest daughter lives in Mills River, North Caroluna (0.18%). It's right on the edge of the Blue Ridge Mountains, a 15-minute drive from Asheville (0.43%). My wife and I visited down there over the July 4th holiday, Very nice. We went tubing, hiked, and toured Asheville and Hendersonville (0.49%), near where she works and like Asheville is also quite vibrant and quaint, just not as well known.

Anyone who thinks that Lakewood can sustain property values in the face of 3.225% property tax rates is delusional. (Mattie tells me it does cost more to register a car in NC. And I suspect that trash is privately collected and paid for in addition.)

I can't imagine why anyone would choose to own a home here who doesn't already. At least not until prices adjust (downward) to reflect the high taxes and stagnant (at best) economy.There are plenty of very pleasant places to live whose local governments don't rob you blind.

Mills River, NC, population about 7,000? sure, probably pretty low taxes.

I don't know if Lakewood can sustain its property values either. Somehow people continue buying the vast majority of the houses.

To clarify what I mean by noting the population . . . I see they have a volunteer fire department.

michael gill wrote:To clarify what I mean by noting the population . . . I see they have a volunteer fire department.

Wait isn't this just the other side of the conversation which was the foundation of Team Neo? Akron, Youngstown, Ashtabula, Cleveland have the same GDP as Guam, so that we should get onto the world stage to attract business. Of course they failed miserably.

Just saying.

This was the cle com text message from yesterday:
"We all know that Lakewood's home prices are on the rise, but did you know that they're skyrocketing? Lakewood leads Cuyahoga County cities where homes sell for at least $100,000, with an increase of 52 percent from 2014 to 2019. On the West Side, Bay Village is up 31 percent, North Olmsted 25 percent, Westlake 20 percent and Rocky River 3 percent. These numbers are for single-family homes and for January through July each year."

As i recall that was a Tom Bullock talking point.

What a convoluted and misleading analysis that is. The only thing it proves for sure is that Lakewood had a higher % of single family homes selling for somewhat under $100,000 in 2014 than did Bay Village, North Olmsted, Westlake and Rocky River. And that single-family homes priced in that range increased in value. Of course Rocky River only had 3% more homes selling for over $100,000 in 2019. Virtually all single-family homes in Rocky River were already worth more than $100,000 in 2014. Yeesh....

That said, I'm well aware that Lakewood homes have appreciated handsomely in price over the last five years. And we're all thankful for that. But you know the disclaimer: "past performance is not indicative of future results."

Tim Liston wrote:What a convoluted and misleading analysis that is.

This post has become more an ideological argument than dollars and cents argument.

At some point high property tax rates become wealth confiscation. Some will argue that property taxes fund the operations of local government. That is true but not accurate. In many high tax states and cities property taxes fund gold plated health care plans and very generous pension benefits.

https://www.washingtonpost.com/politics ... edirect=on

Those pension obligations have become so large that every aspect of government is affected.

The people of Pennsylvania recently discovered that the gas tax increase that was meant to pay for road and bridge repair and maintenance was instead used to fund public employee pensions.

https://wnep.com/2019/04/25/tax-payers- ... te-police/

High property taxes increase rents, increase homelessness, increase economic insecurity, decrease wealth and feed the exodus to low tax states.

People look at this issue from their own ideological point of view.

To give the average liberal some idea of how those high tax rates affect the economy and economic activity think about this:

Trillions of dollars in wealth is tied up in tax free foundations. What if we taxed those foundations like real estate and had them pay 4% their assets every year? What affect would it have? Why should foundations be tax exempt?

Bill,

This is getting away from the original point of Lakewood's property taxes, but
foundations in the USA do have to pay out at least of their 5% of their assets out annually to maintain their exemption status.

(https://grantspace.org/resources/knowledge-base/payout/ and https://www.irs.gov/irm/part7/irm_07-027-016)

I'm not condoning foundations who only give 5% of their assets annually as being sufficient; this op-ed by Paul Springstubb, a retired Shaker Heights teacher, argued in this op-ed from earlier this month in the Plain Dealer, that the Cleveland Foundation only distributed 5% which is relatively lower than other foundations of similar assets. https://www.cleveland.com/opinion/2019/ ... inion.html

Bill, if we are comparing Lakewood to little towns with volunteer departments, I guess your point that people come to this discussion from an ideological perspective is well made.

Mike you initiated the comparisons, not Bill or Bridget or me, by contrasting Lakewood with other locales: sparsely populated, homes without character, lacking lakefront access, etc. As though Lakewood somehow needs or deserves far more property tax dollars than, say, a city not on Lake Erie. You also dwell on Mills River, and are conveniently forgetting the other comparisons: Charleston, Asheville, Westlake, etc. I'm simply pointing out that 3.225% property tax rates in a 1.53% interest rate world (today's 10-year Treasury close) is simply outrageous and will eventually cause Lakewood's property values to fall. As such rates would cause any city's property values to fall, densely populated or not, when desirable very-low-tax alternatives of all shapes and sizes are available. And so far nobody's disputing that.

Tim, you initiated the comparison by starting the topic with the comparison, "if Lakewood was a state."

My point was that comparing a city of 50,000 with full time police, fire, etc with a state wide average (including rural places, and all those other differences) is not a telling comparison. No one, I think including yourself, picks a state for its low property tax average and moves there for that reason. Additionally, it does cost more to have a professional fire department than one run by volunteers.

You brought up the town where your daughter lives, a town with a volunteer fire department, and touted its low taxes.

I am not stuck on that and I didn't bring it up; I just pointed out one of the differences.

Lakewood's property values are certain to fall eventually. You seem to think the reason for that is that the taxes are high, is that fair? I think there are a multitude of other economic factors.