If Lakewood Was a State....

[michael gill]

I am in awe of your facility with numbers, Tim.

I just don't think tax rates alone drive property values as much as you suggest, and don't think comparing one specific city's tax rate to state wide averages is useful.

[Tim Liston]

Michael Gill says: “ The premise of this is funny, Tim.”

Michael, the thought of “de-modeling” a house so as to increase its value (by way of a big reduction in assessed value and property taxes) seems absurd, and was suggested mostly in jest. But then again, I pass by this house twice a day….



Now that is an exquisitely de-modeled home! Those window treatments reduce the assessed value substantially. Likewise the hardscaping. I’d have never thought to just dump gravel down (and a pallet) and leave it there for months on end. And the green half-bath is to die for, though it must get chilly in the winter. Maybe I’ll sneak through the side entrance (not shown) and see what’s going on inside.

Thanks to the clever de-modeling, its owner has reduced the assessed value to a mere $84,000, and the annual property tax bill down to just $2,522. By comparison the property two doors down recently sold for $193,000. At 3.225% his/her property taxes are $6,215, so by comparison the 17852 de-modeling saves $3,693 a year in taxes. Assuming a 1.95% interest rate (today’s Schwab money market rate) one would have to save about $189,400 to earn $3,693 a year. Why, you could buy a nice house with $189.400.

So maybe de-modeling is not so absurd after all. Though I think a de-modeled home should at least remain habitable. One thing I can tell you for sure is I’m not plunking any new money into my place, at least not visibly. I have no interest in paying twice for one improvement, once to the builder and then again to LCSD, the city, the county, et. al. That’s what’s absurd.

[Bridget Conant]

That eyesore is owned by Relief Properties and Darren Mancuso.

It’s a travesty that he has been allowed to create that mess and not clean it up. Nice how friends of Summers get away with this ghettoization.

[cmager]

That eyesore is owned by Relief Properties and Darren Mancuso. It’s a travesty that he has been allowed to create that mess and not clean it up. Nice how friends of Summers get away with this ghettoization.

That house is tragic. People should be in Summers' face everywhere, every day, and at every meeting.

[michael gill]

Tim, that is indeed a remarkable home.

I know there's a lot of talk about it, who owns it, all the horror. People are really upset. Yes, it is a prominent eyesore. Do you happen to know what is actually going on there? Is it a tax strategy? Is the owner spiteful of the neighbors? Or in financial trouble? It has been years like that. I am sure the city is aware, has cited, etc. Does anyone know what is actually going on there?

[Bridget Conant]

http://lakewoodobserver.com/forum/viewtopic.php?f=7&t=25333&p=186772&hilit=Relief+Properties#p186772

[michael gill]

All that is pretty well known and public, and actually kind of obvious. Of course there have been citations, of course the violations have not been repaired. The house has been like that, more or less, for years.

Does anyone know what is goig on?

[Jim O'Bryan]

First rule of doing business in Lakewood... "It's not what you know, but who you..."

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[Tim Liston]

I didn’t mean to make it about this house in particular, I shouldn’t have picked it -- it’s too notorious and detracted from my point. There are plenty of houses in Lakewood that are very neglected and look like crap, and whose owners are thereby rewarded with much lower property tax bills than those of us who maintain our homes.

My point is this. Lakewood’s property tax rate is extraordinarily high, both as a percentage rate and especially on an absolute dollar basis (as Bill pointed out). Also, and this is important, interest rates on savings/investments have dropped precipitously over the last several years. The 10-year Treasury is at an all-time low, now 1.45% and falling almost daily, which exposes the enormity of a 3.225% property tax rate. How is it that the various taxing jurisdictions can remotely justify confiscating 3.225% of my real estate wealth every year when I can’t safely earn even 2% on my financial assets? That is beyond astounding.

I well-understand that there are good reasons to prefer Lakewood: lakefront, proximity to CLE, inner-ring vibe, walkability, etc. That’s why I move here in 1985. But Lakewood’s very high taxes, and the property tax in particular, are soon going to have the effect of lowering property values. Economists use a tool called “marginal analysis” to help with decision-making and policy analysis. Without going into detail, for example if just 10% of those who might consider moving to or remaining in Lakewood are deterred by its taxes and instead choose another locale, home values can easily fall by way more than 10%, because a 10% change in demand (one way or the other) can have an outsized marginal effect. It took only a small increase in demand at the margin to cause Lakewood home values to substantially increase. But home values were much lower then and interest rates much higher.

This speaks only to outright purchases/sales. It does not address home improvement. And as I have said previously, one would be foolish to spend substantial sums on home improvement in Lakewood. As soon as you pull the permits you put a big “Kick Me” sign on your back. I’d like to spend some serious bucks on a kitchen expansion on my never-expanded 1913 home. But there is no way I’m doing that. Not here in Lakewood anyways. My property taxes would go to $20,000 a year!

Mike to your earlier point, I think real estate and other taxes are quickly moving up the list of considerations when choosing a place to live, especially at the high end and especially since the $10K limit on SALT tax deductions finally hit people in the wallet last April. When you look at the data, there is almost a perfect correlation between high taxes (especially real estate taxes) and outmigration. Go back to my OP and look at the data. Look at Illinois, New Jersey, Connecticut and even California. Correlations (e.g. between taxes and outmigration) have reasons. It’s partly retired people moving out. And it’s partly better-off young people just not putting those states on their home-buying short lists. Who in their right mind moves to Chicago or its suburbs and buys a home? Nobody. And it’s because of taxes. For example click here and click here. You can find 100 articles just like this. And Chicago is not unlike Lakewood. It’s not inland or sparsely populated.

Mike you said it was unfair to compare Lakewood’s property tax rates to statewide averages. OK let’s say you’re right about that. So now it’s on you to give me a city to which Lakewood can be compared. How about Chicago, IL? Or Asheviile, NC? Are those fair comparisons? If not, what is?

Property taxes have become outrageous particularly as interest rates have plummeted.

[michael gill]

Tim, indeed that house is notorious and created a distraction. I have to note also that while it is aggravating to see such decay over so many years in such a prominent location, and while many people are aware of the documented citations and failures to rectify, no one has provided any information as to why the owner has allowed the situation to continue. Perhaps they have some innate sense that the situation has to do with the owner's personal finances, and have the decency to stop at the point of the public court documents.

I suspect that the house does not look like the owner wishes it to look. I suspect that the owner would love to have it repaired and remodeled so that (s)he could take advantage of the current real estate boom in town, either to flip it or to rent it. This is exactly the time that anyone involved in that scenario--the owner or the city or the neighbors--would love to have it on the market, sold, occupied, to take advantage of the market.

I know your suggestion that the condition of the house as a tax avoidance strategy is a joke.

The idea that they are being rewarded with low taxes is a conflation of issues. The value of the house is lower than it would be if it were restored / improved / maintained. To suggest that low taxes are a reward is to suggest that a tax policy providing incentive for decay. To suggest that homeowners are rewarded for decayed properties and punished for maintained, improved properties is to suggest that people with less money should pay more taxes than people with more money.

To me, the bottom line in this discussion is the use of the word "investment." A house is an investment in that it costs money, and people buy and sell them. But it is not an investment in the way a 401K, or stocks or bonds are. You have to pay to live somewhere. If you decide to buy rather than rent, any financial benefit of owning a home is a side effect. You have to live somewhere. You can't live in a 401K. If you rent a house, you are paying the owner's taxes, whatever they may be. You are also paying the owner's insurance, and probably mortgage and some net gain. In the end all that might cost more than a house payment. By way of complaining about property taxes, you calculate their cost into the future, without end. The same applies to your rent if you choose to go that route. It continues as long as you are alive.

Meanwhile, taxes are neither punishment nor reward. They are how we pay for city services. It is silly to even acknowledge that you know all this, because of course we all do. How big or small government should be is a never-ending argument, but we have to pay for it somehow.

[Richard Baker]

[quote="Tim Liston"]Bill Call says: “Property taxes over 2% are really just a confiscation of real estate wealth.”

That’s absolutely right but I think it’s more like 1%, given how low interest rates are these days. And a case can be made that it’s 0%. I get that people don’t understand the pernicious effect of artificially low interest rates. Which is how they get away with confiscating your real estate wealth. Though that’s not government’s rationale for low rates. Making property taxes unaffordable is a side-effect of artificially low interest rates. “Wealth” just doesn’t generate the returns it used to.

Something weird occurred to me recently. Say you remodel your home, perhaps you expand the kitchen. Presumably that adds value to it. The county thinks so. But, per my original post above, your property taxes over time increase by more than the value you (presumably) added by remodeling. That’s not conjecture. At 3.225% a year it’s a mathematical certainty.

So perhaps we should all consider [u]de-modeling[/u] our homes. Remove the granite counters and put back in the Formica. Go find some old sculpted carpeting and put that over the hardwood floors. Get rid of the stainless steel fridge and put in one of those old avocado green monsters. Install tiny little closets and demolish the kitchen addition. Get rid of the central air and put in window units. Let the landscape go to hell.

By doing these things, if the “assessed” value of your home is appropriately reduced, you [u]increase[/u] the value of your home. Sooner or later. That’s because the commensurate reduction in your property taxes exceeds the lost market value of your home. Just as improvements to a Lakewood home cause a more than commensurate increase in property taxes, diminished value will cause more than a commensurate reduction in property taxes. Hence, de-modeling your home increases its value!

Yeah I know it sounds absurd. But it’s not. Sooner or later property taxes are going to make a BIG difference in what homes sell for. The fact is, they already have. Especially at the high end of the market. Which is why my financial assets have performed far better than my real estate assets. My financial assets are not taxed at 3.225% annually. The home I paid $256,500 for in 1995 is now said to be worth $380,000. If I had invested that $256,500 (and 25 years worth of property taxes) in a mix of stocks and bonds I’d have $1.9 million. I remember a few years back when it got so bad in Greece that heirs repudiated their real estate inheritances. We’re headed that way here….[/quote]

Interesting, but that won't reduce your taxes, they are not based on the size or condition of your property. They base on the real estate sale prices of the specific area your home is located. If large expensive homes sale in the area, your screwed. When the Democrats in the county, who are all about democracy, voted out the elected postion of County Auditor and made it an appointed office exempting from answering to the voters, the Democrats have free reign to suck the very economic life out of the area. Detroit is the perfect example, it was the richest city in the world in 1940s and became shambles it is today, why, it was managed exclusively by Democrats.