Property Values - What You Get for... $465,000 - NYTimes.com.
The three homes listed today are very different from each other:
- a 4 bedroom house in Shelburne Falls, MA, on 2 acres (built 1860);
- a 1 bedroom apartment in San Francisco (1921/1950); and
- a 4 bedroom house on 7 acres in Richmond, KY (unstated).
Interestingly, the taxes on each are fairly similar: $4,853, $5,208 and $4,650.
What does one get for one's money? It varies. In the two small towns, a significant portion of the purchase price is likely to be for the structure, even with the large sites involved. In San Francisco, the bulk of one's purchase money is not for the structure, which is both small and modest, but for the location -- the proximity to jobs, to transportation, to all the amenities -- both publicly and privately provided -- of city life.
- a 4 bedroom house in Shelburne Falls, MA, on 2 acres -- 2,741 square feet
- a 1 bedroom apartment in San Francisco -- 641 square feet
- a 4 bedroom house on 7 acres in Richmond, KY -- 3,233 square feet.
Quick and dirty, these homes are each probably worth $100 per square foot. The remainder of the value is locational value.
- a 4 bedroom house in Shelburne Falls, MA, on 2 acres -- 2,741 square feet -> $274,000 house and $181,000 land (60/40)
- a 1 bedroom apartment in San Francisco -- 641 square feet -> $64,000 house and $385,000 land (14/86)
- a 4 bedroom house on 7 acres in Richmond, KY -- 3,233 square feet. -> $323,000 house and $142,000 land (69/31)
In the small towns, one is paying the seller mostly for value he (or a previous owner) created. In cities, one is paying the seller mostly for value he didn't create.
In each situation, property taxes are, more or less, 1% of the asking price. Assuming that the buyers put down 20% of the $465,000 ($93,000) and finance the remaining 80% ($372,000) with a mortgage at 6% for 30 years, they'll be paying $27,000 per year on the mortgage and $5,000 to their community in the first year. 85% of their carrying cost goes to the lender, 15% to the community.
Viewed another way, if we looked at this as if all the purchase money was borrowed, about 87% of the carrying cost goes to the lender and 13% to the community. And of that 87%, only 17% is principle; 83% is interest. That interest all leaves town. It isn't available for meeting the needs of the community, or of the borrower's family. It doesn't get recycled locally.
And, on top of that, the buyer continues to pay taxes on both the land and the building, and on their purchases and on their wages and most of their other income.
Can you picture how it would be if, instead of paying taxes based on one's wages and purchases and the house one occupies, one's taxes were primarily a function of the value of the land one occupied?
- The buyer of the Shelburne Falls property would be paying on the basis of his $181,000 worth of land
- the buyer of the SF property would be paying based on his $385,000 of land; and
- the buyer of the Richmond property would be paying based on his $142,000 worth of land.
Why is that tiny plot in San Francisco worth so much more?
2. high paying jobs in a vibrant economy, including very specialized jobs
3. proximity to community, culture, etc.
Were we to based our taxes on land value, the seller of the tiny San Francisco apartment would receive, say, $64,000 for his structure. And the buyer would not be taxed on that value by his community. Rather, he would be taxed on the value of the land he bought, paying, say, 5% of that value in the form of a tax on his land value: 5% of $385,000 is $19,250 per year. His mortgage payment on the $64,000 purchase would be $4,650 per year. And he wouldn't owe any other taxes.
Wouldn't that be a more just system? He pays San Francisco and California for the right to occupy that choice site. They recycle those funds locally to provide the services and infrastructure which make that site worth ~$20,000 per year, and send some on to the federal government.
This leaves the mortgage lender out of the loop. The homebuyer doesn't need to borrow $450,000; he only needs to borrow $64,000. The other funds are available for more productive purposes: financing businesses. Creating jobs. Maybe financing cars or other purchases.
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