A front-page article in the 3/8/08 Charlotte (County, FL) Sun entitled "Not Affordable Enough" speaks to some interesting and important issues regarding Florida's housing. A few excerpts:
The current downturn in residential real estate sales has created the closest thing to a buyer's market Florida has seen since the 1990s.
While that might be great news for a Northern couple looking to retire in Punta Gorda or Port Charlotte with their life savings, Charlotte County's median home price -- about $175,000 according to recent Florida Association of Realtors figures -- is still a barrier for many local wage earners ...
Despite North Port's reputation as a haven for working families, the median sale price in the Sarasota-Bradenton market remains about $260,000
Referring to recent problems in the housing market,
"It's a blip on the screen really, and in a year, we're going to be thankful that we did some investing in affordable housing," said Ron Thomas, executive director of Enterprise Punta Gorda, the city's economic development bureau. "When everybody says that there's plenty of affordable housing, we have to qualify that by saying that there is plenty of affordable housing for people who are in the 80 percent or above the median income. This doesn't have any positive effect for anybody in the 30 to 80 percent median income bracket."
"Even as low as (housing) has come down, it still might not suit firefighters, police, and school teachers. They're still struggling," said Bill Albers, Punta Gorda city councilman. Albers is the council's liaison to the Punta Gorda Housing Authority.
The article goes on to mention a fund created some years ago which is apparently funded by a "documentary stamp tax":
In 1992, the Sadowski Affordable Housing Act created a revenue source for housing programs by increasing the documentary stamp tax. But in 2005, the Legislature capped the Sadowski trust fund at $243 million, starting in 2007. Anything collected over this will now go into the state's revenue fund.
The business organizations want the cap repealed and the Sadowski trust money used only for housing. Barney Bishop, president of Associated Industries, said his group's research indicates that there's currently about $560 million in the trust fund.
Even with $560 million in the fund, how can such a thing create even a small dent in the housing affordability problem? At, say, $10,000 per household, that's 56,000 households, still a small fraction of the need.
And if one stops to think about the dynamics of the current situation, that $560 million infusion into the state's economy can have only one effect: to drive up housing prices for everyone!
Why did I qualify that with "current?" What could Florida do differently to make that $560 million helpful for those, say, 56,000 households without simply driving up everyone's housing costs and general cost of living?
The first step is to get rid of Florida's property tax assessment caps, the so-called "Save Our Homes" program, which caps the annual increase in the assessed value of some people's homes at 2% per year, no matter how much the market value of the property rises, until the house is sold, at which point the assessment re-sets at whatever value the buyer and seller report the transaction price to have been. (See another recent Florida story at http://www.browardpalmbeach.com/2008-03-06/news/haunted-house for an example of how this gets gamed.)
Such programs -- California's Proposition 13 is an even more vile version -- actually drive up the price of housing. Some people -- new buyers -- get to subsidize long-time owners who pay much lower taxes for identical properties. (Believe it or not, the 1992 SCOTUS said this was just fine; it is difficult to believe that any court would reach the same conclusion with 15 more years of data.)
So the first step is to start treating everyone equally. Assess every property at its current market value, valuing the land first (every transaction that leads to a teardown tells us what the local land value is) and valuing the existing building -- old cottage or new mansion -- taking into account current construction costs for a comparable structure and taking into account the depreciation which has occurred (roughly 1.5% per year) -- which might be as much as 90% off the current construction cost.
But that is necessary, but not sufficient.
The second step is to separate the property tax into its two components. The conventional property tax is two taxes -- a tax on buildings and a tax on land value. They work in very different ways: a tax on buildings discourages maintenance, discourages redevelopment, discourages investment; a tax on land value encourages the more effective use of valuable pieces of land -- the owner is less able to afford to keep it vacant or underused. (The effect of using both these taxes together has been compared to a train with engines pulling at both ends -- a lot of wheel-spinning and wasted energy!)
The conventional property tax places identical millage rates on land value and building value. And when "Save Our Homes" or "Proposition 13" or other equally ill-willed measures constrain the property tax, the effect over 10 or 20 years is to tax land -- which is appreciating -- less and less and less. And in turn, the low level of taxation ... for some ... has a lock-in effect: those favored by the provisions tend to stay in their houses -- even if those houses no longer really suit their changing needs -- for much longer than they would otherwise. This reduces the number of houses on the market at any time (supply), and thereby increases the price for the younger families who need a place to live and would prefer to buy. (Adding in that $560 million "affordable housing" money drives up those prices even higher.) The effect is that those lucky folks who have houses to sell -- those going into nursing homes, perhaps, or the heirs of the elderly who stayed in those houses far beyond the stage at which they'd have downsized to something that fit their changing needs and abilities -- can walk away with a much higher price. And they didn't need to lift a finger! Our tax laws and the natural tendency of land to increase in value as a function of the combination of
(1) population increase generally -- be it through increased fertility or immigration;
(2) population increase locally -- people drawn to amenities like the ocean, a riverfront, a ski-mountain, ;
(3) taxpayer investment -- be it locally-raised funds, or federal or state pork -- in services that people desire, like good schools, public safety, libraries, hospitals, parks, paved and plowed streets, road and rail transportation systems, airports, city water systems [think of Las Vegas, the southeast]; sanitary and stormwater sewers, reliable utilities [think of Iraq]
(4) technological innovation -- be it air conditioning, hurricane- or earthquake-resistant building technologies, fiberglass boats or elevators.
(5) a healthy local economy, providing jobs which pay well
-- all these factors work together to increase land value -- without the individual landholder lifting a finger! What a deal (for him or it)! Those who need housing -- our young people and all the rest of us -- must pay those who currently own land, for value the landholders didn't create! Those who need a place for their business, in the center of activity, must do the same.
What's the alternative? Pay the seller for the building he created (or bought from the fellow who built it, or from a previous owner who bought it from him) and pay the commons a monthly, quarterly or annual payment for the use of the piece of land on which it sits. The payment to the seller would, in most urban places, be the smaller portion, and might be handled by a 15 or 30 year mortgage; the payment to the commons would be at a lower capitalization rate -- say, 5% or so. Yes, it would increase over time, with the increase in local land value. But the total carrying costs would generally be a lot less than purchasers today must deal with.
And when some combination of a healthy local economy, a slug of pork spending, and a vote by locals to fund appealing local services drive up land values, it gets paid for from a tax on those land values. A perpetual revenue machine.
And If we do this right, we can stop taxing wages (e.g., Philadelphia has a 4% wage tax, St. Louis and KC 1%) and sales (Chicago will soon have a 10.25% sales tax). Just tax land value.
What happens when we tax land value? We get better land use. We get more housing. We get more affordable housing. We get more jobs (both in the ongoing redevelopment process and in the resulting structures). We get less sprawl. We get more density. We can finance more effective transportation systems. We get more walkable cities. We get fewer fortunes made in real estate that are actually mostly land appreciation.