Sunday, December 13, 2015

Low private-to-public investment ratios are a wicked problem in housing

Urbanophile has a really interesting post explaining how property tax caps can decrease housing availability on the low-end under conditions of low private:public investment:
Indiana caps property taxes at 1% of a home’s value. That’s all the property tax money local government has to work with to provide all the services on which that property depends. 
Houses that are too cheap – and too cheap could mean as expensive as $450,000 – will not produce enough property taxes to sustain municipal services. 
This means housing for working class people isn’t going to get approved. This requires no recourse to racism, elitism, etc. to explain. Lower cost housing simply has a negative ROI for these communities.
This becomes a (more) screwed up issue when you consider a similar situation without property tax caps:
But even a place without tax caps would end up like too many East Coast cities. They might in theory have a housing stock that would sustainably support a wider range of incomes. But in these towns sky high property taxes keep the working class out.
What's clearly evident is that a low property value to infrastructure investment ratio produces financially fragile cities and municipalities. This effect can occur through a variety of channels, and has negative consequences for poor people and beneficiaries of public services (i.e. everyone).

There are fundamentally two ways to address this problem. One is for public transit and infrastructure agencies to reduce the amount of funding they push to low-yielding projects, either by cutting spending or eliminating techniques like tax increment financing. This faces seemingly insurmountable public choice hurdles.

The other approach would be to enable an intensification of low-end property development. Zoning and regulations like density caps, height caps and parking minimums effectively serve to chop-off the bottom chunk of the market. Bringing back old-school development forms like boarding houses would massively benefit poorer Americans, and probably have some positive spillover effects on the broader economy too. Making it easier for people to relocate for work would decrease frictional unemployment and likely improve social mobility.

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