Month: August 2021

Cheap housing is on cheaper land

Click for larger, interactive map

UPDATE Aug 29 2021:  If anyone familiar with Chicago doubts that removing improvements from the tax base will ease the burden on low-income homeowners, this map will be instructive.   The original, mapless post from Aug 25 follows.

We sometimes are told that a land value tax (LVT) would punish the poor person who has a small rundown house on a high-value lot, while benefiting the person next door who has a large fancy house on an identical lot. And that’s not wrong, it’s just atypical.  In practice, we believe, poor people mostly live in neighborhoods where housing is cheap and land is cheaper, thus they would tend to benefit from a shift to LVT.

As the quality of Cook County assessments has been improving, we expect to be able to show this by analysis of that data. In the meantime, we have some estimates of land and improvement value from William Larson and colleagues at the Federal Housing Finance Agency.  Using appraisals produced for mortgage underwriting, they estimate land and improvement values for homes in most zip codes (and census tracts) nationwide.  Their source data includes only single family properties which were appraised for mortgage purposes.  They consider only parcels where the improvement is less than 15 years old, and exclude vacant land as well as land where the appraised value is very close to the assessed value (in case appraisers might have relied on low-quality or obsolete assessments).  Also excluded are zip codes with an insufficient number of single family home transactions.

The chart below shows, for Chicago zip codes, the ratio of land value to total value (vertical axis) and total value of the property (horizontal axis. What stands out is that the ratio tends to be lower where the properties are cheaper.  That is, a revenue-neutral shift of property taxation to land values only, ignoring value of improvements, would tend to reduce the taxes on low-value zip codes, while increasing it in higher-value areas.

 

The table below shows the data for each zip code, sorted from high proportion of value in land to low.   Clearly the more affluent areas have lower proportion of improvement value, and the areas with low income population have a higher proportion of improvement value.

Estimated land value proportion and related data for single family properties in Chicago zip codes
ZIP Code Lot Size building sq ft floor area ratio Property Value (As-is) Land Share of Property Value
60640 4300 2320 0.540 $809,500 50.70%
60614 2920 2950 1.010 $1,516,300 47.10%
60613 3740 2590 0.693 $1,128,200 46.90%
60625 4220 1860 0.441 $528,000 46.30%
60618 3580 1890 0.528 $615,800 45.90%
60660 3820 1940 0.508 $553,500 44.50%
60657 3210 2600 0.810 $1,133,300 44.40%
60622 3120 2330 0.747 $911,800 41.80%
60631 5620 1690 0.301 $390,700 40.90%
60610 2250 2900 1.289 $1,443,300 40.20%
60646 5370 1820 0.339 $445,900 39.80%
60647 3250 1880 0.578 $600,800 39.20%
60654 1990 3580 1.799 $1,661,200 37.40%
60630 4310 1550 0.360 $315,500 37.20%
60642 2230 2140 0.960 $667,200 37.20%
60641 4230 1640 0.388 $316,400 35.70%
60605 1840 2200 1.196 $774,700 35.30%
60659 4310 1800 0.418 $367,500 35.10%
60626 5410 2050 0.379 $407,400 34.20%
60656 5100 1500 0.294 $334,600 34.20%
60612 2910 1920 0.660 $424,300 33.90%
60645 4420 1870 0.423 $373,600 33.70%
60634 4240 1470 0.347 $264,100 32.40%
60608 2960 1530 0.517 $302,200 31.70%
60615 4460 2630 0.590 $615,700 31.50%
60616 2570 1950 0.759 $447,900 31.40%
60607 1970 2140 1.086 $641,400 28.90%
60655 5140 1490 0.290 $258,000 28.80%
60707 4940 1600 0.324 $258,700 28.70%
60637 3920 1970 0.503 $350,000 26.30%
60609 3320 1450 0.437 $209,700 25.20%
60639 3900 1420 0.364 $202,900 25.20%
60638 4280 1340 0.313 $225,100 24.70%
60632 3860 1300 0.337 $173,600 20.60%
60643 5960 1600 0.268 $200,800 20.60%
60652 4730 1330 0.281 $176,400 18.30%
60629 4040 1340 0.332 $155,300 17.40%
60651 3920 1440 0.367 $158,300 16.90%
60653 3290 2360 0.717 $390,100 16.60%
60644 4580 1650 0.360 $137,400 16.00%
60633 4690 1320 0.281 $120,200 15.20%
60649 4960 1870 0.377 $170,800 13.80%
60623 3510 1340 0.382 $118,500 13.60%
60624 3300 1540 0.467 $122,200 12.80%
60621 3880 1490 0.384 $69,300 11.50%
60617 4200 1360 0.324 $116,300 11.20%
60619 4320 1430 0.331 $127,700 10.50%
60636 3540 1270 0.359 $65,200 10.30%
60620 4180 1410 0.337 $117,800 10.20%
60628 4320 1340 0.310 $99,800 9.20%
source: https://www.fhfa.gov/PolicyProgramsResearch/Research/Pages/wp1901.aspx

A Chicago zip code map is here.

Also of interest, even tho the low-value areas have a high ratio of improvement to land value, this isn’t because of large houses on small lots.  The floor area ratio is generally lower in the areas with lower land value proportion.

Overall, the above data is consistent with Georgists’ assertion that low-income residents usually benefit from a switch to LVT.  I might be taking a further look at this dataset.

2020 Cook County Property Tax Analysis — sort of

image credit: Andy Arthur CC BY 2.0

We have a new report from Cook County Treasurer Maria Pappas, subtitled “2020 Cook County property tax analysis: A heavier burden for businesses, Black and Latino suburban property owners.”   It’s got more detail than I recall seeing published before, including two decades of total real estate tax revenue countywide and by triad, and (for the past two years only) median taxes per parcel for residential and commercial, by municipality and township (and limited data for Chicago wards)  as well as a fun list of the ten highest residential and commercial tax bills for each township. The extra load Cook County’s current classification system places on commercial property is noted.

All of this data for individual parcels has been available on the Treasurer’s web site for some time, but it wasn’t assembled for convenient use.

It’s likely impossible to discuss the real estate tax system (let alone the complete scope of public revenue) in a way which can hold the attention even of people who find themselves heavily burdened by the way government is funded and operated.  And Pappas’ office got this information out quickly, as the taxes have only recently been calculated and won’t be due until October 1.  All the same, there are problems which one hopes will be fixed next time this is done (and one certainly hopes there will be a next time, soon.)

Noting the continuing rise in revenues, the report asserts that “[t]he bigger tax burden is not being shared equally.”  What could this mean?  What would be equal?  Should we fund government by a poll tax, which is the only way to get everyone to pay the same amount? Perhaps the writer means “equitably,”  a desirable thing tho difficult to agree on. It’s then observed that “Property owners in many south suburbs continue to pay far more in taxes than landowners in other parts of the county.”  I will set aside the fact that “property” and “land” aren’t the same thing, and assume that the writer may have meant “real estate taxes are higher in many south suburbs than in other parts of the county,” which is sufficiently cautious that it must be true.

But in fact the amount of real estate tax paid by a median homeowner is much lower, less than $4,000/year in Bloom and Thornton townships (page 49 of the statistics section of the report), less than any of the north suburban townships (page 56).

That doesn’t mean that the taxes in Bloom and Thornton aren’t a burden for many, because taxes imposed on struggling people are always a burden. And the very high tax rates reduce market values, while increasing the extra burden on renters (who cannot benefit from the “homeowner exemption.”)

The report makes no attempt to separate the value of land from the value of improvements, even tho the assessments provide this breakout for each parcel.  There’s no distinction between owner-occupied and renter-occupied homes. The only mention of vacant land is to say that it’s been ignored, as has mixed-use (residential+commercial) property.  There’s no mention at all of exempt government-owned land.

It would be helpful to include reference maps, especially of townships. And in an ideal world, the tables would be offered in spreadsheet format.