I had an unexpected visit home for Thanksgiving, thanks to inclement weather that diverted my plane from Dallas-Fort Worth (where I was supposed to have a layover) to Houston (where my folks live). Once it became apparent that I wouldn’t get back to L.A. in time to teach my Wednesday morning classes, I decided to extend my stay in Houston long enough to spend the holiday with my family.
While there, I had a conversation with my mom that reminded me of a policy idea I had a couple of years ago. My parents’ property taxes, like those of many homeowners, are constantly rising – not because the tax rates go up, but because the city keeps raising the assessed value of the property. The assessed value is almost certainly higher, probably a lot higher, than what the property could actually sell for on the open market. The government-employed assessors naturally have an incentive to overestimate the value of property, because doing so boosts revenues.
So here’s my proposal: Any property owner whose property is subject to a tax based on a government-assessed valuation should have the option to force the government to purchase the property at, say, 97% of the assessed value. This would give the state a strong incentive not to overvalue property, since whenever it did so, it could be faced with the losing proposition of buying at above-market value and then selling at actual-market value.
Why 97% instead of 100%? That was actually my original idea, but then I realized setting the buy-out value at 100% of the assessed value would give owners a poor incentive: they could avoid all marketing costs, realtor fees, etc., associated with selling a home simply by exercising their option of selling to the government. As a result, most property sales would end up going through the state, with all the poor consequences of a state-run real-estate market. So the buy-out percentage would need to be set low enough that if the state’s assessment were approximately correct, most property owners would still choose to sell in private markets. I don’t have any particular basis for choosing 97%; I just pulled that number out of my butt. If my proposal were taken seriously, a careful analysis of real estate markets would be required to find out the percentage of the market value owners actually receive on average; the buy-out percentage would be set somewhere below that figure. (To be more precise, we’d have to find out the variance in the percentages of market values received by owners, and then set the buy-out percentage low enough that only a specified fraction of sales would involve forced buy-outs.)
P.S. Thanks to co-blogger Tom for keeping this site active during my absence!