Renters, Home Owners, and Hidden Taxes: Property Values, Taxes, and Government Funding

Governments that fund all or some of their activities or programs using property taxes are at the mercy of how property values change.  When property values increase, the dollar amount of the property taxes collected also increases without having to change the property tax rate.


However, when the value of property goes down, such as it did in connection with the 2007 housing and mortgage problems that led to a significant recession, then the amount of money collected by those same governments also go down.

When this happens, government must either reduce their spending or they must seek to ask voters to allow for an increase in the rate used to assess property taxes.

There was an initial drop in consumer spending in connection with the start of the recession.  It wasn’t too long before consumer spending started to increase, even if that increase was slow.  However, property values continued to drop, on average, for several years after the start of that recession.

If the property taxes collected during this recession, which are hidden from renters had been replaced by transparent taxes, then as soon as consumer purchases started increasing, the dollar amount of taxes collected would have also increased.

Speaking only of property taxes as a means of funding any part of government, a case could be made for suggesting that government has the same potential motivation as wealthy real estate investors.  Namely, having property values increase so that more money comes in as a result of those increases.

Think about it.  Investors make money buying property at one price, and then arranging to sell the property at a higher price.  So, if property values are increasing, that makes it easier for investors to make the extra wealth producing money that is their goal.

In a comparable way, if property values increase, the money collected by government in the form of property taxes also increases.

Thus, we have the potential for some in government to have the same motivation as wealthy investors, namely, push property values up so as to get more money out of the increase.

While that’s good for wealthy investors and for property tax oriented government programs, it also makes it harder for the neediest members of society to find quality places they can afford to rent or to qualify to buy at least a small home that they can call their own.

And why is this?  Because as property values increase, the amount of the property tax portion of the P.I.T.I. payment also increases, as does the principle, interest, and insurance portions.

These other values increase in relation to the increased purchase price or increased cost of insuring a home at replacement value.  Replacement value insurance clauses are recommended so that, if your home is a total loss due to something like a fire, your insurance will cover the cost of building you a replacement at whatever current market shows the construction cost to be.

Thank you for taking time to read and ponder my opinion on this topic.
An Opinion Article by Dave Kemper
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It has been said that: "One definition of insanity is to do the same thing, the same way, over and over and over again, each time expecting to achieve a different result."
Therefore, we must either CHANGE the way we live, or we bind our future to our past as if with CHAINS.
"I do not consider myself to be better than anyone else.  But I do believe in exercising my right to not stay stupid."

David W. Kemper, Author
© Copyright 2014 by David William Kemper.  All right reserved
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