Getting property taxation right

Why isn't the purchase price the permanent valuation for the length of time you own it?

Only in Dayton is the $10K house a reality

Are you your neighbors keeper?

Every week I look at the listings of homes sold in Montgomery County and marvel, because only in Dayton can you buy a home for less than the price of a nice used car.

This doesn’t happen in surrounding communities (other than the depressed ones- Jefferson, Trotwood) . Do you wonder why?

It’s all supply and demand would be the perfect capitalists answer. But, what drives demand?

In real estate 101 they say “location, location, location” – and people choose communities based on the schools. And to some extent this is also correct. Yet, my house, bought for $14,500 in 1986 is worth close to 10x that, and a slightly larger home 2 doors down, just went for the same amount 7 years ago. It shouldn’t have sold that low, but it was a foreclosure. And, my property value dropped- not just because the price was low, but because of the cancer that moved in.

Four doors down, a house sold for $95K 3 years ago. The new couple put at least $40K into it before splitting. It sold in a day- price unknown, but for well over $125K. And my property values are sure to go up.

Yet, I didn’t change locations, and my schools still suck. My investments in my house shouldn’t penalize me with higher taxes anymore than what my neighbors do. The value will come to me, and to the community, when I sell.

How and why do the actions of others affect my property values? If I own a share of stock in 3M, does my value go up just because Apple had a great year? No. Yes, if I go to sell my car, and someone else paid X for a similar car- that’s the price- but, I’m not selling my home, I just want to live here. Why should my value change until I do something?

Simple answer- it shouldn’t. And, this constant re-valuation of real estate based on the actions of others is causing gentrification, housing bubbles, foreclosures, and a mangled economy.

The purchase price of an owner occupied home shouldn’t change until the house is sold. The same should be said of rental property. When the government steps in and raises your property value for taxation purposes, they become an uncontrollable variable in a business equation. They distort markets. They screw existing businesses and property owners when they offer tax abatement to the new guy, while the long term investor gets shafted.

And, it’s almost counterproductive to do improvements to your property, if the tax man is just going to charge you more. But, what could be worse? Your neighbor doing improvements.

Case study: Dr. Michael Ervin, shadow mayor of Dayton before he left town for Scottsdale AZ, bought a dump of a bar in the Oregon District and poured $1.6M into it. This skewed the valuation tables for his neighbors, who were thankful the bar left, but were asked to pay more for Dr. Mike’s excess. Some, couldn’t pay the additional taxes and were forced to sell or move. Others might have spent more on a crappy house, because Dr. Mike did what he did. The market skewed. But, 10 years later, when it came time to sell, Dr. Mike got less than half his money back on his taj mahal. Yes, it’s still double the value of any of the other single family homes- and still skews things, but, the only person paying the tax on the new market rate evaluation- $725K , should be the new owner. Just as the neighbors who never left, shouldn’t have been forced to pay more when the $1.6 boondoggle went in.

The reason we pay property taxes is supposedly to support public infrastructure and government to keep our investments safe. Income taxes are supposedly a more progressive tax that are supposed to be based on ability to pay. When property taxes unfairly start to penalize people for making a long-term investment that they hoped to keep- it’s wildly unfair, un-American.

The fact that almost every office building downtown has been foreclosed on, while tenants have moved to fairer pastures funded in part by tax dollars- with more advantageous tax structures (both income and property tax) like Austin Landing is proof positive that our property taxation and income taxation hodge podge is causing more problems than it’s helping.

The value of the Kettering Tower, once the premier office space in Dayton, was decimated by Dayton’s high income tax (now 2.5%) and property taxes based on market forces beyond the owners control. Would Austin Landing have looked so good, without the huge investment in infrastructure by the county, or the income tax free zone for white collar workers (while the retail underclass pays 2%)? Probably not.

It’s time to realize that tax policy and abatement has serious consequences to the entire region, and we need to find a way to level the playing field and stop letting the choices others make, affect our tax rates.

Regional tax policy, from property to income tax, needs to be set and managed at the county level, and by fair market forces, for all of us to live within our means, and to stop changing the playing field in the middle of the game.


Hucksters diverting taxes into speculation: Land Banks

The people who live in Dayton don’t have much money. The people who work in Dayton, who were taxed without a say in the matter do have money, but many of them are skedaddling to tax-free havens of the townships and places without an income tax. The craziest part of this new order is the area around Austin Landing where some people pay taxes and some don’t- depending on if your collar is white or blue (and for the life of me, I don’t know how they figure out who pays and who doesn’t).

So when money gets taken from the good people of Dayton and our guest workers to take care of city business- the money should go to the things that people are expected to pay taxes for: police, fire, roads, street lights, parks, public area maintenance, infrastructure, zoning and building code enforcement, etc.

But, instead, a great deal of it is being spent on things that aren’t really for the public good, things like empty buildings that someone may want, or building spec buildings that someone may occupy, or trying to patch problems caused by our lack of attention to the things we’re supposed to do right in the first place.

In a healthy community, people invest because they feel safe in their investment and believe there is a real return for their money. In an unhealthy community, you see disinvestment and decay. While fighting decay can become a city’s focus, it’s treating the symptoms, not the disease itself.

Land Banks take tax dollars that should be used to deliver top-notch services and spend them on buying up blight. The blight happened because other areas became more desirable- because of better schools, nicer parks, lower taxes, more land, newer homes, better shopping, etc. and people and jobs moved out. It sucks when the grass actually is greener in your neighboring communities.

For Dayton, the major cause of the economic segregation happened when school busing was implemented. People with kids, who could afford to move, did. Busing in Dayton was the best thing that ever happened to the suburbs. People like the Hubers made a fortune off new homes for new families who were escaping Dayton. Busing was a perfect example of government intervention gone totally wrong. I think Land Banks are a similar #FAIL.

Across the street from me are three small cottages that were built around the end of WWI. Supposedly, by a family, where the parents lived in one, and each kid got their own. The lot would normally hold 2 houses, but has 3 instead. I bought numbers 2 and 3 in 1996, because I couldn’t stand the tenants the slumlord was renting to. I overpaid to get control of the street. When the slumlord saw what I did to the houses, he couldn’t understand. His economic model was to buy shit and rent it as shit to Section 8-supported people and take as much money out as possible. My model was to provide housing that I’d be willing to live in, to nice tenants at a fair price.

I invested in quality of life, he invested for a return. That’s the fundamental difference in cities like Kettering, which strives for good schools, safe neighborhoods, clean, well-kept parks, and an abundance of amenities like the Fraze, the Rec with an ice rink, Delco Park, the Skate park, etc.

Dayton’s “leaders” are looking for a return on investment. They will do anything to attract tax dollars, including mortgage our future. They also, have to keep people happy who pay for very expensive political campaigns. They like people who tear things down and build new things. They abhor those who maintain the status quo, or are just getting by, because they, and their donors, don’t get a chance to take a scrape (“”scrape- a term used by mobsters to indicate their share of the deal just for being in charge/feared)

Back to the three cottages. Number 1, had been cheaply rehabbed by the same slumlord who sold me numbers 2 and 3, and sold to a young couple. They put a second mortgage on it, and were trying to keep it in decent shape until they broke up and she ran off with his friend. Next he lost his job, moved away and it sat. Along the way it lost most of its guts- the furnace, AC unit, water lines, wiring. Racoons, cats and rats moved in. It was vacant for a long time. He started to have problems paying the taxes, and finally, before the tax man took it- he sold it for a dollar and the tax liability to a neighbor of mine. The taxes were about $5,500 for a 1,000-square-foot house, with nothing remotely right about it.

It needs a new roof, a paint job, windows, doors, utilities, and it’s still valued at $30,000 for taxes. This is where the disincentive to invest comes in. If it was worth $30,000, why wasn’t it sold for that? If it’s going to take $30,000 to get it to that value, why spend it? If we want our population to grow, or for our properties to be reclaimed, is it better to spend $10,000 tearing this down which will give us an empty lot worth nothing? With zero tax recovery. Or to reward resident investors for their hard work?

While collecting the past due $5,500 may seem like a big win for the county, it does nothing for our community if that money is taken and turned around and spent on tearing down another building or buying one on speculation that it may be rehabbed and reoccupied. Spend that money on giving our community a unique competitive advantage like true fiber gigabit Internet. Build that system and you have a true competitive advantage that can’t be had anywhere in the state at a reasonable price, and you may see more people willing to invest in Dayton.

Instead of patting ourselves on the back for collecting the $5,500, write a contract with the investor, that if he or she lives in it for five years, the taxes are waived. And, as long as the house is their primary residence, they property is valued at the purchase price. Instead of spending money to pay Tyler Technologies  (the company that sets property tax values for the county) to try to make it more expensive to live here, we should be working to make it more desirable to live here.

Figuring out the value of real estate for taxation purposes shouldn’t be that difficult. Nor, should it be a system where you are penalized for improving your property. It used to be easy to estimate the value of rental property before the advent of credit default swaps and other Wall Street swindles that caused the foreclosure crisis. The monthly rent was equal to about 1% of the property value. If we started using real world valuation for property taxes, and focused our efforts with public dollars to provide for the general public good- we’d start to see investment again, without government intervention.

Taking your tax dollars from you, to buy other property is legalized robbery. Allowing banks to kick people out of homes and not maintain them in the same condition as when occupied is criminal and costing all of us through decreased property values as wealth is sucked out of our community. The banks got us into this mess, by using our properties as collateral for their speculative investments. Now, our local government is trying to tell us that if they run a bank, buying up property, we’ll be better off too. Horse hockey.

Government isn’t and shouldn’t be in the business of buying real estate for speculation. Nor should government be part of the process of stealing homes based on unreasonable and arbitrary tax valuations.

Until cities realize that tax dollars aren’t to be viewed as a return on investment, but instead as the profits from creating a valued and viable community, we’re screwed. Invest in quality of life and delivery of service. Protect the homes and investments of the people who are here, instead of asking them to pay to clean up the messes of those who’ve left. And remember that the cost of acquisition of new taxpayers is much higher than keeping the ones you already have. Then we may start to cure the problems, instead of treating the symptoms.