One of my google alerts has brought me some news items about residents' objections to a recent revaluation of property in the Township and Borough of Princeton, New Jersey. 200 residents turned out at a recent meeting to discuss the data.
I haven't been in Princeton in at least 30 years, and my familiarity with it is from bits and pieces I've heard over the years, and from two articles and some letters to the editor.
- "Residents Want More Revaluation Data" at http://www.towntopics.com/jul2810/story1.php
- LTE's at http://www.towntopics.com/jul2810/mailbox.php
- "PRINCETON: Revaluation rage prompts officials' letter" at http://www.centraljersey.com/articles/2010/07/29/the_princeton_packet/news/doc4c5202e6192a3290251940.txt
I am not an assessor or an appraiser, but an "amateur" in the finest sense of that word. As far as I know, I know no-one associated with the assessment company involved. I think good assessments are vitally important and not all that difficult to do well. As I read these two articles, I find reason to suspect that the assessments are of better quality than those who are protesting them recognize. I'll leave it to you to read the citations above, and just move to some comments.
First, Princeton's taxes have been based on valuations done in 1996. Between 1996 and 2010, here are some of the things which have happened:
- land values have risen tremendously, and -- almost certainly -- unevenly. Property within walking distance of various amenities, including jobs and transportation, will have risen faster in value than land which is less well-located, even in this high-priced town. Princeton likely has an excellent school district, and even small and (relatively) badly located lots are likely to have appreciated faster than those outside the school district.
- houses in Princeton, like those anywhere else, are depreciating. A Federal Reserve Board study (May, 2006) pegs annual depreciation at 1.5%.
- in affluent areas, homeowners may make major improvements to their homes, which offset that depreciation somewhat.
- it is likely that some of Princeton's transactions have been followed by teardowns and the building of a new home on a choice site. The assessor may have valued those new homes at some estimate of what they would have been worth in 1996, in an attempt to be equitable.
Not all lots are created equal, and even if they were, they wouldn't stay equal.
- everyone local -- not just the real estate agents -- can tell you which are the best (residential, commercial) locations in town, and which are somewhat less so. Many factors play into this: perceived quality of neighborhood elementary schools; proximity to Trader Joe's, Whole Foods or Starbucks; proximity to the university, or the library, or a park or appealing body of water; proximity to public transportation or highways; etc.
- as the housing stock ages, a slightly larger lot in a small-lot neighborhood is likely to be more valuable than a smaller one because a larger home can be built on it and/or because one has more choice in exactly how a new home can be sited within the property. A slightly larger lot allows room for a pool, or a garden, or whatever amenity the homeowner might choose. The market will show this, if one looks.
Here's a quote from article #3:
Kip Cherry of Dempsey Avenue studied the area encompassing Valley Road, Mount Lucas Road and Ewing Street. Among her findings was an inconsistent correlation between size of lot and value of the property. The smaller the lot, the more the land was valued per acre, she said.
”By and large, almost every lot in our neighborhood was between $300,000 and $400,000, regardless of the size of the lot,” she said. “We were kind of scratching our heads and trying to figure out how that could be.”
While it may seem incongruous to Ms. Cherry, it seems pretty logical that all the lots within a neighborhood would be worth approximately the same amount (unless some were large enough to subdivide and others were not, in which case a wider variation would make sense).
The response of the assessment company representative struck me as a bit odd:
Mr. Snyder attempted to explain the process by which land was assessed, an issue raised not only by Ms. Cherry but several others who spoke. He explained that properties are given a “site value” for the simple presence of a home, and land is assessed at a diminishing value as the lots become larger. Whether a lot is large enough to potentially be subdivided cannot be considered in its assessment, he said.
With little undeveloped land remaining in the township, the appraisal company used a “land abstraction method” to value parcels. By law, the assessment must break apart the value of the land and the value of the improvements, he said. Anomalies exist where the land that a small house sits on is worth less than the land of neighboring properties.
”We had to reduce the land value so we could create a house on it because it would have been a negative (value) for the house,” he said. “You can’t do that.”
The "site value" is not just for the presence of a home. If the home had burned down the day before the valuation date, or been torn down years ago, the site would still be worth what it would be worth with a home on it. But there is no reason why a house couldn't have a negative value in a valid assessment. If there have been multiple teardowns, that is evidence of 100% of the value being in the land. And removing a house costs about $10 per square foot, the last I heard. (Might there be a buyer who would choose to live in that house nonetheless? Of course.)
Old houses may be worth next to nothing. This is difficult for some people to accept. People who dearly love old buildings may argue that they have a special charm. And indeed there is a market for them. But it is also true that the property might sell for more if there were no building on it than it does with that building on it. That means that the house is worth next to nothing, and may actually be a liability! Styles in houses change. Split-levels or raised ranches, once the rage, are "out of fashion" in some places. Buyers may want "great rooms" and the ability to keep family members nearby. Buyers may want modern insulation, windows, doors and roofs, and wiring that will support current technology. The value for which one insures a home against fire has little to do with its current value in the market, and everything to do with the cost of constructing a similar-sized replacement home today. (And the resulting home would be superior to the older home it replaced, due to modern technologies and lack of depreciation.) The insured value shouldn't be taken into account in an assessment for tax purposes.
Revaluations are a way to keep each property owner's share of the total tax burden current. When 14 years have passed with no rebalancing of the load, those who have been (increasingly!) subsidized by their neighbors are likely to scream about the injustice they are about to bear -- but those who have been carrying them don't seem to be entitled to a sigh of relief.
Astute homebuyers comparing several similarly-priced properties within the same municipality might be forgiven for comparing the tax bills they carry, and choosing the under-assessed one over the over-assessed one -- thereby giving a generous parting gift to the fellow who has already been subsidized by his fellow residents for some years! (And then we might not be surprised if they were bitter when their assessment was brought up to market value.)
Many of the biases alleged in the Letters to the Editor can be explained adequately by recognizing that land rises in value, and houses don't -- but that a new assessment after 14 years must get rid of some anomalies that the assessor was forced into for valuing new construction and renovations in the intervening years.
The 2006 Federal Reserve Board study I referred to earlier also provided some information that many homeowners might find surprising:
- for the 46 major metro markets they looked at, land represented 51% of the value of single-family residential home value, on average, in 2004
- this ranged from about 20% in Oklahoma City to 89% in San Francisco metro. No metro in California was below 62%.
- Boston and NYC metro areas were in the 65% to 75% range, if I recall correctly
Princeton, like many other extremely upscale towns, is likely to be much higher than the average for major metro areas. An average of 80% of the value being in land would not be at all surprising to me. New subdivisions, if any, might be much lower, if the homes are modest -- but in Princeton I'd be surprised if they were.
After 14 years, all the land would have increased significantly in value. Smaller homes might be valued at very low levels, and larger ones somewhat higher. One letter writer proposed valuing all the land, anywhere in town, at one value per square foot, and all the improvements at another, and having one's property tax be the sum of the two products, calling this more objective than the market value. Let me guess that this person might have a newish house on a small, well-located lot.
"Small houses" and "large houses" are shorthand terms which may obscure more than they illuminate. The "small house" may be on a fabulously well-located lot, close to all the amenities that people want. "Large houses" may be in a more distant subdivision. "Small houses" may be much older than "large houses," due to the economics of building at the time they were constructed; spec builders apparently maximize their profit by building a house which will sell for 4 times what the land cost them.
Several letter-writers referred to concern for elderly homeowners. Rather than using variation in assessments to protect elderly people (without regard to their means, or the rights of others), I encourage Princeton to look into Bill Batt's paper, "The Poor Widow Solution" at http://www.wealthandwant.com/docs/unindexed/Batt_poor_widow_solution.htm.
I encourage Princeton to map the land values which the recent revaluation provided, and see whether they fit with reality. GIS maps can be quite useful. (Contact Bill Batt, in Albany, for more information.) One should see gradual rises in land values as one approaches positive amenities, and decreases near negative ones.
Finally, I am willing to bet that the new valuations probably over-value somewhat the vast majority of the houses and undervalue the land, particularly the better locations. Good land valuations are inexpensive to do, and inexpensive to update. But one has to require that the land be valued first, and the residual -- the difference between the total market value of the current property and the value of the land -- be assigned to the current house. And few towns are smart enough to write that into the specifications for the assessment they contract for.
The Princeton area has some fine minds, and I hope some of them will devote some attention to thinking about how best a community should share the burden of providing the goods and services which make it a good place to live. 60 years ago, there was a Princeton historian, Eric Goldman, who cited the inspiration many people who cared about a just and prosperous society drew from the ideas of Henry George. I hope some in the Princeton vicinity today who might be moved to explore what those ideas can offer their community and their country.
Privilege and Justice are opposites. More of one means less of the other. The owners of under-assessed properties have had a privilege -- an unintentional one perhaps, but a privilege nonetheless. It is time to restore justice. They won't get back their over-payments, of course, but at least the tax load will be properly balanced.
Having said all this, I've not seen the valuations, and were I to sit down with them and the data, I might find fault with them. But I don't regard what I've read in the cited material as necessarily valid objections, despite the obvious conviction and passion of the letter writers and interviewees.
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