Crains reports today that rising land costs, as well as increases in construction costs and uncertainty about real estate taxes, is slowing construction of single family housing on the north side. One might think this would result in lower land prices, but a builder is quoted as saying lots in Lincoln Park and Lakeview, which recently sold in the $700,000 range, are now going for $900,000 and up. This makes it difficult or impossible to build a new house selling for the $1 to $1.5 million that buyers seem willing to spend.
So if it’s not demand for houses, what is driving up the price of land? Possibly more multi-family is being built? Or other uses? (Other than the City’s massive database — which doesn’t specify type of structure nor how many units, except as inconsistent text fields — I can’t find any statistics on housing construction within the City. Must be somewhere…)
Or possibly the supply of vacant lots, or deteriorated structures on lots that could be made vacant, has depleted? Or purchase and sale of vacant lots is used to launder money?
The article also notes that land costs are much lower in an isolated part of Bridgeport/Chinatown, specifically Throop & Hillock, where a recent development of attached and detached houses paid $55,300 per unit for land.
Good reporting from Wirepoints, based on articles from Reason and Pro Publica, about the City of Chicago pushing low-income motorists into bankruptcy. These sources focus on the twin injustices of punitive ticketing and fines, and aggressive impoundment of innocent motorists’ cars. Of course parking restrictions, liability insurance requirements, and traffic rules need to be enforced, but it’s pretty clear that Chicago Police and other municipal actors see this as a source of revenue to pay their salaries and pensions, more than as an enforcement mechanism. The statistics imply a racist motive as well.
But that’s not the point. The point is, why do people with low incomes need to own cars? Why can’t they get where they need to go by transit? The answer, of course, is that in most affordable neighborhoods transit is sparse: Buses run slowly and infrequently, and quit early. Rail is only a bit faster, and most lines also lack 24-hour service. Relatively few jobs are reliably accessible within an hour, or even two hours travel time. And with the demise of neighborhood retail, cars are almost essential for shopping. Schools, libraries, other government facilities have large free parking lots even it they’re poorly-located for transit and pedestrian access. So of course people who can’t afford to own and operate automobiles find they’re compelled to have them.
This doesn’t justify the municipality stealing money and property from residents already living on the economic edge. It just makes it worse.
We have a new report(pdf) today from the Civic Consulting Alliance, pointing out that residential assessments (excluding condominiums and large apartment buildings) done by Joe Berrios and his crew are of poor technical quality, don’t make effective use of modern techniques, and tend to treat expensive properties more leniently than less expensive ones. The Tribune article gives pretty good context and describes the contents of the report, so I won’t try to duplicate it. Rather, I’ll focus on just a few things that caught my eye.
The study uses data that apparently has never been made public. That is, it belongs to the public as represented by Joe Berrios, but the public hasn’t been permitted to see it. And we’re still not permitted to see it. In fact, the consultants and the Assessor seem to have spent more than two months negotiating a five-page nondisclosure agreement (reproduced at the end of the report) to make sure we wouldn’t see it. But we are able to see some detailed analysis, in the study appendix, that’s more useful than the raw data for understanding how assessments actually work.
We get some useful detail on the bias in favor of expensive properties.
The above figure, which is Appendix Table 5 in the report, shows the inaccuracy (left half, shorter bar means less inaccurate) and bias in favor of expensive properties (right half, shorter bar means less bias). We can see that the bias in favor of expensive properties exists for all four categories, but is most serious for multi-family and mixed-use (residential with a storefront, for example). But for such properties, there’s no reason to expect that the expensive property contains the wealthier taxpayer.
Also as previously observed, the report notes that more appeals are filed by owners of more expensive properties:
This implies that wealthier homeowners are getting a bigger tax break, proportionally, than less wealthy homeowners. I suspect it’s true, but I really don’t see any way around it within the current assessment system. The wealthier homeowner has more to gain from a successful appeal (or, what is the same thing, more to lose by failing to appeal.) She may also be more comfortable dealing with government officials and forms (and perhaps with the tax lawyers who send mailings to homeowners).
But isn’t the same true of the income tax? The wealthier taxpayer is more likely to know, or learn, tax-avoidance tricks, and/or to use a skilled tax preparer. The difference is that parcel-level assessment data is, to some extent, public information, but income tax returns in the U S no longer are.
Of course the main remedy for problems of inequitable assessments comprises:
(1) Assess only land value, ignoring the value of any improvements on the parcel.
(2) Post the assessments, including all information used to calculate them.
Westbound on Cermak at Wabash (Menace of Privilege photo)
BACK ON THE BUS: SPEEDING UP CHICAGO’S BUSES showed up this morning from Active Trans. Of course it says transit needs more money, and doesn’t connect the dots on cost-effective investments. From the executive summary:
Chicago needs a healthy and growing bus system. Fewer Chicagoans riding the bus means more people driving and more cars on our already congested streets, especially in and around downtown during peak periods. Our hub-and-spoke rail system continues to be a good option for people who live and work along the CTA train lines and in the Loop, but many neighborhoods lack access to it. Without more investment in bus service, Chicago risks more people abandoning transit for transportation options that are more expensive and less efficient, healthy, and green.
The report acknowledges that part of the problem has been CTA’s substantial service reductions, but seems mainly to look at “how do we move buses around faster” rather than “how do we provide service that lets people travel where they want, when they want, under civilized conditions and at a reasonable cost.” But, hey, moving buses faster is probably a good start.
One of many sophisticated dogs named “Wrigley” Image credit: Liz CC BY-NC 2.0
Expanding on a subject covered here nearly six years ago, Tim Novak of the Sun Times writes about assessment deals in Wrigleyville. Actually, not just 32 properties in Wrigleyville, but apparently on 13,984 parcels countywide, each of which reportedly contains commercial use along with at least one, but no more than six, apartments.
Because Cook County taxes residential (and vacant) property at 40% of the rate applicable to commercial property, and because, 17 years ago, the Cook County Board decided to pretend that commercial property containing one to six apartments is residential, taxes on these 32 Wrigley-area properties (and, presumably, on all 13,984 parcels) are only 40% of the amount they would otherwise be. Furthermore, Novak visited some of the properties and found evidence that they don’t contain any apartments at all. Which Assessor Berrios thanked him for reporting.
Novak also visited an auto repair shop across the street from Wrigley, whose owner owes $78,000 in back taxes and claims to fear losing his property. Of course I don’t know the owner’s personal financial situation, but given high land prices in the neighborhood, it seems he could sell his site for a couple million dollars, take the money and buy (or buy land and build) a better facility a mile or two away. Across from Wrigley may have been a good location for car repair in the 1970s, but not so today.
Three conclusions:
(1) Sun Times needs to sell papers (and attract web traffic) and putting “Wrigley” in the title probably doubles or quadruples the number of people who’d read an article about “tax break.” But the issue is taxes, not commercial baseball.
(2) Once again, let’s be thankful that real estate tax and assessment data is (mostly) accessible to the public. Who knows what kinds of scandals there are on the income tax and sales tax returns filed by the politically-connected property owners, their accountants or attorneys? Unless Wikileaks takes an interest, we’ll never see them.
(3) All this would be solved with a land value tax. Everybody pays the same rate — a big rate — based on the value of their land, exclusive of improvements, and perhaps no other taxes are needed. If there were inequities, the Sun Times — or the Civic Federation — could publish maps making them readily visible.
August 2017 view south from Jackson Blvd bridge. It turns out this structure is the remnant of an underground bypass to handle river flow. Click image to enlarge. (photo by Menace of Privilege)
Building The Canal to Save Chicago by Richard Lanyon is a great book about a critical infrastructure project. It’s the story of what we now call the Chicago Sanitary and Ship Canal, built at the close of the 19th century to protect Chicago’s water supply. Of course there’s more to it than that, including effects on flooding, navigation, and downstate.
The book is full of photographs of the work, and one cannot ignore how dirty, strenuous, dangerous (and noisy) it must have been. Power shovels, dredges, locomotives, various devices for moving soil out of the channel– all powered by coal, burned without emission controls of course. Over 5,000 people were employed, and there were deaths — unfortunately no count is provided.
We get some useful details about the costs and funding. Substantially all of the construction (which began in 1892 and was substantially complete in 1900) was done by contractors under competitive bidding. The work day was set at 8 hours, with extra pay for work beyond that time. Minimum wage was to be 15¢/hour.
Adjusted to today’s (2015) GDP/capita, that 15¢ equates to about $37.50, but other approaches would yield vastly different numbers. Of course, due to the primitive equipment available, the workers could not have been nearly as productive as equivalent workers would be today.
Total cost of the project was reported as $33,530,000 (page 355 — excluding work east of Damen). This could equate to $8.38 billion today. It was paid entirely (page 338) from property taxes imposed on the approximate area benefited (including bonded debt paid from these taxes), without federal or state financial assistance. Initially the tax rate was 0.5% of assessed valuation, later raised for a five-year period to 1.5%. If based on actual property value, this would be a very hefty tax, but traditionally property in Cook County has been assessed at a modest fraction of market value.
I say “property tax” rather than “real estate tax” because, up until the 1970s, Illinois taxed personal property as well as real estate. The tax was poorly-enforced and hard to administer, and was replaced by a corporate income tax surcharge. I suspect that personal property never amounted to more than a small fraction of the tax base.
The Chicago Tribune, or what’s left of it, has issued a pretty good report on inequities and corruption at the Cook County Assessor’s office. Of particular note, they’ve included a lot of detailed statistics looking at assessment/sales price ratios, as well as a lot of details of recent history. I think it’s fair to describe their main points as:
Less expensive homes typically are assessed at a higher percentage of market value than more expensive homes, and therefore pay more taxes than they would if assessments more accurately reflected market prices.
Sophisticated homeowners are more likely than unsophisticated ones to appeal their assessments, and a large percentage of appeals are successful. This is one cause of the problem in (1).
The quality of assessments in Cook County doesn’t meet professional standards of accuracy. The MacArthur Foundation funded development of new mass appraisal methods which may provide more accurate results, but the Assessor has made little or no use of them.
The Cook County Assessor’s office suffers from some combination of corruption and incompetence.
photo of a south suburban rainbow by Tom Gill (CC BY-NC-ND 2.0)
Thanks to Crains for an article discussing the multiple difficulties of maintaining the south side of Chicago, and the south Cook County suburbs, as viable communities. There are a lot of issues here, but two of them are real estate taxes and vacant lots. The article notes that effective tax rates – taxes as a percentage of property value – in the south suburbs are more than double the average (I suppose they mean the average for Cook County). And that’s for the south suburbs as a whole; in one area your annual tax bill will be over 10% of what your real estate is worth.
So of course there are numerous vacant lots as well as rundown properties. If you spend $100,000 to build a house in an area where the effective tax rate is 10%, you’ll pay $10,000/year tax (in addition to the tax on the unimproved land value). That’s far more than your mortgage, maintenance, and utilities would be, so you don’t build it.
In fact, it’s worse, because Cook County, in practice, assesses residential properties at a higher percentage of value than vacant land – 56% higher according to the latest data(pdf) from the Illinois Department of Revenue. Even more incentive to let the property run down.
Suppose, instead, that two changes were made:
(1) Assess the value of vacant land, as well as of houses, accurately. This is the responsibility of the Cook County Asssessor.
(2) Stop giving vacant land the discount that residential property gets. Currently, commercial and industrial properties are supposed to pay a tax rate 2.5 times what houses and vacant land pay. That might not be a good idea, but it’s the law as enacted by the Cook County Board. The Board could move vacant land into the same category as commercial and industrial land.
If these two changes were made, the effective tax rate on vacant land would be triple, or more, what it is today. That changes the calculation for the land owner. Suddenly the cost of holding land vacant is higher, which means the alternative – developing or selling it – is lower. That’s important, because more development means more housing and/or more jobs.
Of course this change would raise more revenue for schools and other governments, or perhaps could be used to lower taxes on other uses. The amount of revenue isn’t certain, since the Assessor does not share information on the number or value of vacant parcels.
There is absolutely no danger that owners will pick up their vacant land and move it out of Cook County. It is here to stay. We just need to fix the incentives to encourage development in areas where it is lacking.
This is not the whole solution to the difficulties of the south suburbs, but it is one useful step that costs homeowners and governments nothing. All it requires is for Cook County officials to do their jobs.
Well now, more precisely, how come the spectrum held by a TV station broadcasting from Ottawa fetched a higher price than any other station offered? WWTO is owned by Trinity Broadcasting and broadcasts on five digital subchannels according to the Wikipedia article. According to the report today from the Federal Communications Commission, their spectrum sold for $304 million, highest in the U S. , while WYCC’s spectrum in Chicago fetched only $16 million. I know there are all kinds of technical considerations that might explain the difference, but it’s a curious one. Some of us are suspicious when government-owned assets are sold for a comparatively low price. Both stations are reportedly going off the air.
Nationwide, most of the spectrum has been “purchased” by wireless companies but apparently some will be returned to the “unlicensed” category for use by wifi and similar low-power devices.
So most of the spectrum will be used by private corporations to provide services from which they expect to obtain a profit. Kind of like commercial land, which everyone agrees is subject to tax. So why does the government not tax privately-held spectrum?
Some people are Cubs fans, others find it more interesting to watch the Assessor.
Crains reports that a very prosperous Cub, Jon Lester, has purchased and demolished the building next door to his home,apparently so that he could have a side yard. Purchase price was $1.35 million, so the land must be worth that much. It cost Mr. Lester more, of course, since he had to pay to demolish the place, but let’s take the $1.35 million over to the Assessor’s office. There we see that the property was assessed at $100,463, indicating a market value of $1,004,630 for the land + building. Land alone is about a quarter of this, so the Assessor seems to be saying the land is worth $250,000. But it isn’t. Obviously it was worth over a million dollars. (And, checking Zillow, I see that the price isn’t out of line for the area. A 3125 sq ft lot at 1450 W. Grace is on offer for $1.05 million. )
Now, under Cook County’s current rules, the tax bill is based on the assessment of the total parcel and it makes no difference which part is land and which part is building. But with the building gone, it’s important for the assessed value to represent what the land is really worth. Otherwise the rest of us taxpayers have to cover part of Mr. Lester’s share.
(In case the link above stops working, you can readily find the parcel on the Assessor’s web site. Search for 1446 W Berteau, or parcel number 14-17-305-025-0000)
