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OTOH, it's not really a good thing for lifelong residents to be taxed out of their homes. There must be a compromise solution somehow...
Some states allow property taxes for elderly residents to be deferred until death and then just come out of the estate. On top of a generous senior citizen homestead exemption that seems reasonable.
Something needs to change, RE prices and COL are up so high that many people(including many friends and coworkers) are simply cashing out and moving out of state. This year, I expect to see major labor shortages severely effect the operational viability of many aspects of life/business in this state. Pharmacies, gas stations, grocery store staff, handymen, plumbers, electricians, nurses/assistants, mechanics, painters, transportation workers-Ferries, and so on are already in short supply. Washington's high cost of living(some areas in the top 5% highest in the nation now), high crime, heavily taxed lifestyle is going to attract them?
That isn't a property tax issue. That is a housing shortage issue.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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My sister and cousin feel trapped in their California, large homes of ~40 years.
Oregon has a tax cap of 6% and California has a 2% cap. IIRC.
Washington has sales, user fees, and property taxes.
Oregon has income tax, smaller user fees, and property taxes.
California has income tax, property, and sales taxes.
JMO, no state has a lock on a workable tax policy.
YTMV
My sister and cousin feel trapped in their California, large homes of ~40 years.
Oregon has a tax cap of 6% and California has a 2% cap. IIRC.
Washington has sales, user fees, and property taxes.
Oregon has income tax, smaller user fees, and property taxes.
California has income tax, property, and sales taxes.
JMO, no state has a lock on a workable tax policy.
YTMV
No state has a perfect system for all. The big benefit of Prop 13 for your sister is that they are not taxed out of their home. That is a real issue in some states including WA when long term residents pay ever increasing taxes during retirement above and beyond their means. In CA that simply DOES NOT happen and its great for those who purchased their homes decades ago like your family. Whereas new buyers pay the going assessed rates. There is a fairness to that since they paid their dues many years ago.
The thing that some don't like is its allowed folks to gain wealth through buying multiple income properties when prices were lower and pay tax based upon the same principle. Others consider this fair without deference to one's income. It depends from whose perspective you look at it from, I guess. But most Californians I know have benefited from Prop 13 and would not change it. Pay your dues and reap the rewards over time regardless of age, socioeconomic status, etc...
That's not to say Prop 13 is perfect or doesn't need to be overhauled. For example, CA could change the tax benefit to only primary residences instead of a blanket cap including vacation homes of the rich or multiple income properties. I think FL has a tax structure that benefits primary residents vs. snowbirds who live there only a few months out the year.
I'm not sure I like the idea of 'deferred' taxes for the elderly and low income. The state will still take its 'pound of flesh' and then some leaving it to relatives and loved ones of the deceased. I guess that's better than getting kicked to the curb while living on a fixed income during one's sunset years. But its not a very good legacy to live with knowing one's leaving behind a big mound of unpaid debt. Basically, the state will require sale of the property and squeeze out every last cent they can along with anything else they can get their hands on.
There's got to be some better pathways than that for long-term residents, especially those of limited means. But even for the middle class who have ever rising costs during mid-life who may have grown up in the state or spent decades building a life in WA. Should the state have 'unlimited' opportunities to tax homeowners vs. some kind of max annual increase or caps? Improvements are needed.
I disagree that supply is going to solve everything. I've lived through the most massive increase of supply in California history and it didn't solve affordability. The same types of expansions are happening in many states and even within parts of WA including here in Clark County. That doesn't magically make homes more affordable when they remain in high demand. The same is true for all high demand areas including many places in WA such as the greater Seattle metro, Bham, Clark County, etc...They could build thousands of new homes and buyers would still be there to snatch them up at current prices. They're doing the same right next door with new homes selling for $700k and up. How affordable is that for the average resident?
Increasing supply really has nothing to do with high taxation or changes like Prop 13 attempt to solve. That's an apples to oranges comparison. An elderly person getting taxed out of their home could care less if they build 10, 100 or 1000s of new homes near them. It makes no difference in their situation. It's also very naïve to assume values will drop simply by building some new homes. West coast RE development history and experience shows that to be untrue and a completely different story even though it may sound good theoretically. The same thing has happened in other states as well including CO - a massive expansion of new homes and prices never decreased. In fact, they went up! There's simply more to the equation than that alone regarding home values. As an old RE appraiser, I've watched prices change dramatically over the years and supply was always a much smaller market factor than many others more significant market drivers. Even interest rates have a bigger impact along with desirability of an area that does not change . Location, location, location is the name of the game in RE including valuation and that will never change.
Derek
Last edited by MtnSurfer; 01-21-2023 at 01:56 AM..
...That is a real issue in some states including WA when long term residents pay ever increasing taxes during retirement above and beyond their means. In CA that simply DOES NOT happen and its great for those who purchased their homes decades ago like your family. Whereas new buyers pay the going assessed rates. There is a fairness to that since they paid their dues many years ago.
The trouble with the "fairness" argument is that real estate prices don't rise smoothly, or even monotonically. In my current locale, Los Angeles, prices go in waves or staircases, with protracted stagnation or even decline, followed by spectacular booms. The cycles reward market timing. Those who bought at opportune times, lock-in a lifetime of reduced property taxes. Those who buy at crests of cycles, lock in a lifetime of higher taxes. If property taxes were allowed to float up/down according to market conditions, at least those who mistimed the market when they bought, wouldn't have insult added to injury, by way of a lifetime of property tax lock-in.
The other issue is geographic arbitrage. From what I've seen of say Vancouver WA prices, in the 20th century, price trends weren't that different from those in the Midwest. In the year 2000, Vancouver wouldn't have been that much higher than Cincinnati or St. Louis. In the 21st century so far, trends have been starkly different. For the Midwesterner, prices have maybe risen 50% in 23 years. For Vancouver or Portland or nearly anywhere up and down the West Coast, prices have tripled, or more. A Prop-13-style law would reward persons who not only time the market, but who got the geographic arbitrage right.
Quote:
Originally Posted by MtnSurfer
As an old RE appraiser, I've watched prices change dramatically over the years and supply was always a much smaller market factor than many others more significant market drivers. ...
That makes sense, regarding long-term trends. If Manhattan or San Francisco had say 20% more housing units, it is doubtful that prices would stagnate long-term. But would you say the same, about secondary cities that boomed during the pandemic lockdowns? Or other situations where there's a quick and substantial price increase?
That isn't a property tax issue. That is a housing shortage issue.
Both issues are tied together and accountable. WA is assessing taxable values every year at 100% of the market price of a home. So if 3 of your neighbors sell their places for $1M+, even though you bought for $220,000 15 years ago, and are on a limited income, your property taxes/value are going to increase 5x. You can cash out and leave, or slowly have your savings bled dry by all the taxes and "ballooning costs of goods and services" related to an area's high costs of living. If you think grocery and gas prices are going to be the same in an area where the cashiers/attendants can find an apartment for $700 a month vs. $2,000+ a month, then I have a bridge to sell you. Better yet, the $2000/month "municipality" will then turn around and have its hand out for more taxes to subsidize more section-8 housing for those workers that can't afford it. The perpetual cycle repeats, we might as well stand in a bucket while trying to lift it by the handle. So, choose door 1,2, or 3, all = pay more money because new permitted bedrooms failed to match population growth by 1/3rd. There is simply too much red tape at the state and local levels to permit new projects despite high demand and high values.
My friend inherited a 4-plex of tiny studios when his father passed that used to rent for $500/month WSG included in B'ham. You can't even rent a room here for that anymore. Over the past few years he's had to increase it to $1,100/month to just break even with the increases in property taxes, water and sewer taxes/fees. He was saying his impervious surface area fee/tax alone is $4,400 a year and it's not a very big place. But they tax the sq/ft of the patios, paved parking lot, shared laundry room add-on, and everything his Dad improved to make the units decent for the renters.
The trouble with the "fairness" argument is that real estate prices don't rise smoothly, or even monotonically. In my current locale, Los Angeles, prices go in waves or staircases, with protracted stagnation or even decline, followed by spectacular booms. The cycles reward market timing. Those who bought at opportune times, lock-in a lifetime of reduced property taxes. Those who buy at crests of cycles, lock in a lifetime of higher taxes. If property taxes were allowed to float up/down according to market conditions, at least those who mistimed the market when they bought, wouldn't have insult added to injury, by way of a lifetime of property tax lock-in.
I'm not sure how long you have lived in LA, but that's where I'm from and also where I appraised RE. The problem with what you're describing has completely to do with shorter-term market trends vs. longer periods (i.e. decades) which is the case I'm referring to. For long term-residents who purchased a home in their earlier years, they can still retire there and not concern themselves with current assessed values. They will be much better off financially than in other states like WA.
Attempting to market time LA RE or any city of significance is fool's gold similar to Las Vegas odds. Some get lucky, some don't. The same is true of the stock market. People try to time it every day. But much boils down to dumb luck. All markets have booms and busts. But they favor the long-term investor. Conversely, if you bought high and then sold low, well then your luck just ran out.
Here's the historic trends of SoCal. For any long-term resident of the past 20-30+ years, they are much better off than the latest smuck wanting to buy in the same area in terms of price AND most importantly for them taxes. I know many long-term locals who are in such a situation and they are very glad Prop 13 is there for them now.
A similar trends exists across the nation. Here's WA historic values showing the same trend which is significantly upward over time.
The moral of the story is, if you bought your home when young, you can afford to retire there later in life and not get taxed out while living on a more limited income.
Derek
Last edited by MtnSurfer; 01-21-2023 at 04:05 PM..
I'm not sure how long you have lived in LA, but that's where I'm from and also where I appraised RE. The problem with what you're describing has completely to do with shorter-term market trends vs. longer periods (i.e. decades) which is the case I'm referring to.
Lived there in the mid-late 90s, and again recently. Should have bought a house in 1997!
Quote:
Originally Posted by MtnSurfer
Attempting to market time LA RE or any city of significance is fool's gold similar to Las Vegas odds. Some get lucky, some don't. The same is true of the stock market.
Stocks move rapidly. "Past performance is no guarantee of future returns". So I agree wholeheartedly about timing the stock market or the commodities market or the market for any paper asset (including REITs). Residential real estate is a bit different. We have for example the Case-Shiller index, which shows undulations about a more or less steady mean for 130 years... then a spike in 2002-2007, then a return to nearly the mean, and now a much larger spike. Perfect prediction is admittedly impossible, but it's awfully suggestive that residential real estate has to fall. The consequence is that people who bought in 2022 are going to see not just a fall in their equity, but a lifetime of high property taxes.
Quote:
Originally Posted by MtnSurfer
The moral of the story is, if you bought your home when young, you can afford to retire there later in life and not get taxed out while living on a more limited income.
Agreed. In the Midwest, a young person is better off investing his savings in stocks. In Coastal markets, a young person might be better off delaying saving for retirement and instead buying a house. Houses become the great storehouse of value, so that even for a middle aged person of considerable means in LA, the majority of her portfolio might be in her house, and not in the S&P 500. Such a person greatly benefits from Prop-13. The whole system is set up for somebody who stretches to buy earlier in life, then remains rooted for the remainder of life.
Now suppose that a successful corporate lawyer from the Midwest is worth several tens of millions of dollars. At age 57, he gets a job as general counsel for Warner Brothers or something like that, sells his mansion in Cleveland for $600K (because Cleveland!) and wants to buy a modest house in the Hollywood Hills for $2.5M. He has the money to pay cash outright. But what happens to his property taxes? Such a person is much better off moving to Seattle or Vancouver.
California's anti-market policies subsidize some people while penalizing others. A more market-oriented state might be brutal for the financially-strapped, but a haven for those of greater means.
Comparing WA and CA, maybe I'm naive, but it looks to me that CA wants to soak affluent people, especially if they're newcomers... whereas WA's tax structure is almost tailor-made to attract in-migration by those who are already comparatively wealthy. Am I wrong?
It seems like Whatcom County wants to tax us out of our homes. A new proposition just passed tacking on more fees to our property taxes by 10 votes. Death by a thousand cuts analogy. Our neighborhood is gentrifying pushing out the long time middle class. We have been offered more than what Zillow estimates our home is worth ($800,000 more or less) but where would we move to? We would welcome a Prop 13 type of tax relief. I belive Washington state voters passed one such property tax relief bill sometime back but the state Supreme Court struck it down. We do not qualify for the senior exemption by about $15,000.
We barely make enough with SSA plus our small home based business and with new taxes and evaluations, we are struggling at times. Our retirement account is spent in repairs and maintenance. Thankfully, we are frugal buying used items and growing much of our own produce.
Now suppose that a successful corporate lawyer from the Midwest is worth several tens of millions of dollars. At age 57, he gets a job as general counsel for Warner Brothers or something like that, sells his mansion in Cleveland for $600K (because Cleveland!) and wants to buy a modest house in the Hollywood Hills for $2.5M. He has the money to pay cash outright. But what happens to his property taxes? Such a person is much better off moving to Seattle or Vancouver.
California's anti-market policies subsidize some people while penalizing others. A more market-oriented state might be brutal for the financially-strapped, but a haven for those of greater means.
Comparing WA and CA, maybe I'm naive, but it looks to me that CA wants to soak affluent people, especially if they're newcomers... whereas WA's tax structure is almost tailor-made to attract in-migration by those who are already comparatively wealthy. Am I wrong?
Well, I think you answered your own question. Its really the reason so many Californians are moving to WA. And its not just better for the wealthy but the middle class from CA as well. Or at least those who don't own a home currently and cannot afford the ridiculous prices plus high taxes.
For the corporate lawyer, it really depends on their long term goals/desires. Assuming this is a fictitious person, there are lots of factors to consider. How often do they still need to fly back to LA to support their client? Weekly, monthly? That grows old quickly living out of a suitcase. What about buying in the nicer parts of CA for the long-term realizing that prices will eventually rise but not taxes. I would buy somewhere like Thousand Oaks or Santa Barbara - basically somewhere nice outside LA. I hate the Hollywood hills, Westwood, Beverly Hills, Brentwood - all of it. But that's just me after years of living there and working in all those pretentious areas. I can't stand the culture and attitudes.... However, that's an entirely different matter.
I think most of it comes down to where one really enjoys living. It's more about QOL than simply an investment. If one likes LA and also the PNW, then there are lots of factors to weigh. CA can be good to the wealthy who remain for longer periods of time. But for those only there for lets say ~ 5 years, its a bit like market timing. You could buy high, then have to sell lower. And that's a big outlay of cash with a potential loss. But if 10+ years, that's highly likely to increase in value with less risk and greater potential for reward.
Nicer places in the PNW like Seattle, Vancouver, Bellingham will be safer from an investment standpoint without the extremes of LA. And of course, overall costs will be lower especially initially. It will be less of an investment and more of a place to live with modest gains over 5-10+ years taking into account market ups/downs. With a smaller outlay, having to sell and random times will also be less risky. It can also free up money for other investments or second homes. If buying here, I would look for one of the 'relative' deals on a nice view property overlooking the Columbia with Mt. Hood in the background. That provides lots of beauty to experience daily as well as a good 'hot' property in terms of attracting buyers when time to sell. It will be far more lovely than most places in LA unless overlooking the ocean somewhere.
Derek
Last edited by MtnSurfer; 01-21-2023 at 08:30 PM..
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