Property taxes (Pittsburgh, Wilkinsburg, Washington: mortgage, credit, lawyer)

[squarian]

Not sure this has ever been posted here at CD before, but if so apologies for the repetition. I have found this timeline handy for reference. Thanks to Flaherty Fardo for making it and keeping it available:

History of Allegheny County Property Assessments. | Flaherty Fardo, LLC

[user_id]

Originally Posted by BrianTH

High prices is what allows lower tax rates in other places. And buying at high prices hasn't worked out so well lately in many of those places.

The flat 3% income tax is lower than most states and its not progressive so it benefits higher income folks far more than lower income folks, but other than that what is noticeably lower?

Anyhow, for a $500,000 home in Sewickley Heights you're looking at ~$15,000 in property taxes. That's a lot. Now, a few thousand of that may be offset by less income tax...at least compared to where I'm currently living...but that still leaves a hefty property tax bill.

In terms of investment potential, not really thinking of a home in the Pittsburgh area as an investment, given the declining population I'd be happy if it just kept pace with inflation. One thing that is a bit frustrating about high property taxes is that its not consistent with federal tax policy and therefore its harder to develop effective tax strategies. That is, I may have developed strategies to dramatically reduce my realized income and hence avoid a good deal of federal taxes but these strategies won't help much in Pittsburgh.

[BrianTH]

Originally Posted by user_id

The flat 3% income tax is lower than most states and its not progressive so it benefits higher income folks far more than lower income folks, but other than that what is noticeably lower?

I'm actually not sure how that relates to what I posted, but we've discussed before that if you look at property taxes paid as a percentage of income, we're actually pretty middling around here.

Generally, total state and local taxes are pretty middling in PA, and in the Pittsburgh area, when you add everything up. Of course it varies by individual, and more broadly by tax--for example, our sales tax has lots of exemptions, so it depends what you buy.

for a $500,000 home in Sewickley Heights you're looking at ~$15,000 in property taxes. That's a lot.

Just to be precise, that is for a house assessed at $500,000 in 2002. Currently it will likely cost more than that.

In terms of investment potential, not really thinking of a home in the Pittsburgh area as an investment, given the declining population I'd be happy if it just kept pace with inflation.

We tend to do right around there on average, but obviously it depends a great deal on area. Sewickley Heights is probably going to stay close, give or take.

One thing that is a bit frustrating about high property taxes is that its not consistent with federal tax policy and therefore its harder to develop effective tax strategies.

Of course that is part of why states and localities use various forms of consumption taxes, which a tax on personal homes broadly is (along with sales taxes and such)--they are harder to avoid, and these authorities do need revenues to do their stuff.

[user_id]

Originally Posted by BrianTH

I'm actually not sure how that relates to what I posted, but we've discussed before that if you look at property taxes paid as a percentage of income, we're actually pretty middling around here.

Huh? You said "High prices is what allows lower tax rates in other places", were you not discussing other tax rates?

In terms of the aggregate tax burden in the Pittsburgh area, don't care, I'm thinking about my particular case.

Originally Posted by BrianTH

Of course that is part of why states and localities use various forms of consumption taxes, which a tax on personal homes broadly is (along with sales taxes and such)--they are harder to avoid, and these authorities do need revenues to do their stuff.

Consumption taxes aren't hard to avoid, you avoid the taxes by avoiding the consumption or doing the consuming in other parts of the country (yeah, you're suppose to pay use tax...but nobody does). In the case of real estate, there is an incentive to buy a less costly home to lower your overall tax burden.

The high property taxes in the area definitely make it less attractive from the point of view of someone "shopping" the country for relocation possibilities.

Like I said, I knew they were high, but not 3% high.

[BrianTH]

Originally Posted by user_id

Huh? You said "High prices is what allows lower tax rates in other places", were you not discussing other tax rates?

No, sorry, I was talking about property taxes in two different places. If housing in one jurisdiction is twice as expensive as housing in another jurisdiction, the first jurisdiction can have tax rates which are half as much and get the same revenues.

So say a house assessed at $500,000 in Sewickley Heights would be assessed at $1,000,000 in a similar sort of area in another city. That other place could have a 1.5% tax rate and get the same revenues. Hence high prices is what allows lower tax rates in other places.

In terms of the aggregate tax burden in the Pittsburgh area, don't care, I'm thinking about my particular case.

That's fair enough--you would need to look up all the taxes and figure that out.

Consumption taxes aren't hard to avoid, you avoid the taxes by avoiding the consumption or doing the consuming in other parts of the country (yeah, you're suppose to pay use tax...but nobody does).

That works better for some consumption than others. You've really explained why taxes on residences are popular--it is hard to consume your residence somewhere beside where you reside!

In the case of real estate, there is an incentive to buy a less costly home to lower your overall tax burden.

True, but you have to do something with your money. So various authorities try to tax a little of everything.

The high property taxes in the area definitely make it less attractive from the point of view of someone "shopping" the country for relocation possibilities.

All else being equal, sure, but my point is that not all else is equal. Housing being cheap here means higher property taxes, but it also means lower mortgage costs, less capital tied up, lower insurance costs, and so on. Generally, there are more advantages than disadvantages to low housing costs.

And those property taxes fund school districts which are often quite good, and we have relatively low crime rates (mostly not a matter of police costs, but still), and so on. As they say, TANSTAAFL, and cheap housing plus relatively high reliance on property taxes rather than other taxes for a lot of local funding means higher property tax rates.

[user_id]

Originally Posted by BrianTH

If housing in one jurisdiction is twice as expensive as housing in another jurisdiction...

Housing isn't magically cheaper in one area versus another, instead cheaper prices are going to be correlated to lower incomes, smaller houses, etc.

You can't take about tax burdens as a percentage of income and then ignore income differences from jurisdiction from jurisdiction.

Originally Posted by BrianTH

So say a house assessed at $500,000 in Sewickley Heights would be assessed at $1,000,000 in a similar sort of area in another city. That other place could have a 1.5% tax rate and get the same revenues. Hence high prices is what allows lower tax rates in other places.

Sure, if "a similar sort of area" actually existed in another city, but it won't unless the city is a lot like Pittsburgh in which case the prices are going to be similar as well.

But this is irrelevant as well, people are going to think about the local tax burden in terms of their income. There is nothing about a 3% tax rate that is bothersome in itself, instead its once you multiple the rate by the assessed value of the property you are interested in buying.

3%, given real estate prices in some areas of Pittsburgh, is high.

Originally Posted by BrianTH

Housing being cheap here means higher property taxes, but it also means lower mortgage costs, less capital tied up, lower insurance costs, and so on.

No, it doesn't mean that. There is nothing about cheaper real estate costs that necessitate high tax rates and real estate in Pittsburgh is not universally cheap yet the tax rates don't vary too much. Under this theory rates should be cheaper in Sewickley Heights since real estate in that area is considerable more than other parts of Pittsburgh, but that isn't what you find. States/local governments can raise revenue in all sorts of ways.

Anyhow, tax policies don't effect people equally. The median household income in Pittsburgh is $30,000 and for this group the property taxes may not be that bad, after all the median home price is around $80,000. But that doesn't mean anything for me.

Also, above and beyond tax considerations from individuals, the high tax rates tend to prevent development. Cities develop in boom/bust cycles, there isn't a single major US city that grew slowly over time yet this is the model Pittsburgh seems to be utilizing. Unsurprisingly its population continues to decline. Anyhow, the tax policies likely contribute to the lack of growth.

[BrianTH]

Originally Posted by user_id

Housing isn't magically cheaper in one area versus another, instead cheaper prices are going to be correlated to lower incomes, smaller houses, etc.

Those aren't the explanations in Pittsburgh--prices per square foot and ratios of housing prices to income are both favorable as well.

The explanation is actually quite simple. Unlike most major metros, Pittsburgh has been experiencing a population contraction since the steel bust of the early 1980s (although that may have turned around recently). That led to a relative excess of housing supply versus housing demand, which meant housing appreciated at relatively low rates. And then Pittsburgh pretty much entirely missed the housing bubble (for the same reason of contracting population, and a few others, there was no opportunity for a speculative bubble to form).

So it isn't magic, just basic supply and demand, that explains why housing prices are relatively cheap in Pittsburgh.

You can't take about tax burdens as a percentage of income and then ignore income differences from jurisdiction from jurisdiction.

Exactly right! Comparing median housing prices to median incomes gives you an overall sense of how that is working in an area, but obviously you should do this for yourself as an individual. When we were looking around (circa 2008), we found in our job fields that the income differential in the places we were considering was more than made up for by the cheaper housing, but others may reach a different result.

Sure, if "a similar sort of area" actually existed in another city, but it won't unless the city is a lot like Pittsburgh in which case the prices are going to be similar as well.

Obviously no two areas are identical, but we compared neighborhoods with similar commutes to the main employment center, similar housing stock of a similar age, and so on. Prices often were dramatically different, and again that isn't a surprise given the divergent history of Pittsburgh in the last couple of decades.

But this is irrelevant as well, people are going to think about the local tax burden in terms of their income. There is nothing about a 3% tax rate that is bothersome in itself, instead its once you multiple the rate by the assessed value of the property you are interested in buying.

Right, so what you have to do is make sure you are following Pittsburgh norms with respect to house price to income levels when determining which houses you are looking at, because if you do that, your property taxes in relation to your income will remain middling.

Note that in many major metros, the norm can be ratios of 4-5, or considerably more. In Pittsburgh you should stick to ratios around 2-3, maybe a little higher if you are willing to treat your house as a major luxury expenditure.

3%, given real estate prices in some areas of Pittsburgh, is high.

I think high end housing is just as relatively cheap here as other housing. It is amazing what can be a million dollar home in many larger metros.

No, it doesn't mean that. There is nothing about cheaper real estate costs that necessitate high tax rates

Well, government services cost money. That means to provide a certain standard of services, governments need a certain amount of revenue. Now you can shift around to different taxes, but if you are a government that is looking to get $X in revenue from property taxes, then it straightforwardly is the case that higher property assessments means lower taxes, and vice-versa.

and real estate in Pittsburgh is not universally cheap . . .

I really do think it is universally cheap when comparing apples to apples (at least to the extent). There are subtle variations--I think the best deals tend to be in the older core areas, and the newer and farther out suburbs and exurbs tend to have less good deals, but the same basic supply and demand dynamic has filtered through every class of housing to at least some extent, as one would expect.

. . . yet the tax rates don't vary too much. Under this theory rates should be cheaper in Sewickley Heights since real estate in that area is considerable more than other parts of Pittsburgh, but that isn't what you find.

There is some of that observable in the data--rates are lower there than in Wilkinsburg, for example. But generally, jurisdictions are using that extra revenue to fund a higher level of service (in fact even with higher rates, Wilkinsburg has to offer lower levels of service).

States/local governments can raise revenue in all sorts of ways.

True, but it all has to come out of somebody's income at some point. On the other hand, the tax rate any given individual will face can vary with the tax scheme.

Anyhow, tax policies don't effect people equally. The median household income in Pittsburgh is $30,000 and for this group the property taxes may not be that bad, after all the median home price is around $80,000. But that doesn't mean anything for me.

I don't disagree you should evaluate this as an individual. For example, you mentioned tax avoidance schemes, and it may well be the case that Pittsburgh does a better job thwarting your tax avoidance schemes than other places you might consider. Obviously you are entitled to take that into account.

the high tax rates tend to prevent development.

Taxes on improved properties have that effect in general, which is why I think we should shift more of those taxes to taxes on unimproved land.

Cities develop in boom/bust cycles, there isn't a single major US city that grew slowly over time yet this is the model Pittsburgh seems to be utilizing.

There are a number of prosperous U.S. cities that have recently been on a slow-growth path, which I think would be fine for Pittsburgh. Booms aren't necessarily a good thing in the long run, as many places recently have found out (it is one thing if there is a fundamental reason for the boom, another if it is just a speculative bubble).

Unsurprisingly its population continues to decline. Anyhow, the tax policies likely contribute to the lack of growth.

Eh, most of the population dynamic was baked in the cake during the steel bust, and in fact if anything Pittsburgh's population has turned around a little sooner than expected. Tax policies might be a factor, but the level of government services is also a factor, so you have to balance those factors. And on an overall level, I don't think Pittsburgh is out of balance, although I do think there are local situations where things basically can't be balanced in a healthy way (all of which becomes an argument for things like consolidation).

[user_id]

Originally Posted by BrianTH

Those aren't the explanations in Pittsburgh--prices per square foot and ratios of housing prices to income are both favorable as well.

Of course they are explanations in Pittsburgh, the relationship between median income and median housing costs is similar to national averages. Housing in Pittsburgh isn't really cheap when compared to local incomes, its just cheap compared to the nation but Pittsburgh's median household income is noticeably lower than the nation as a whole.

In terms of declining population, this really creates a lack of upward pressure than serious downward pressure. That is because Pittsburgh population boom was decades ago and as a result the housing stock created during this period is now rather old. Most of the excess housing units are in rundown communities, indeed, much of it isn't even in a livable condition today.

Originally Posted by BrianTH

we found in our job fields that the income differential in the places we were considering was more than made up for by the cheaper housing, but others may reach a different result.

Sure, some people can benefit from this sort of arbitrage, but these are usually not lastly opportunities (sooner or later, the cost benefit attracts sufficient people to lower the wages, etc) and most can't benefit from them in the first place.

Originally Posted by BrianTH

Prices often were dramatically different, and again that isn't a surprise given the divergent history of Pittsburgh in the last couple of decades.

Show me one area that is like Pittsburgh, yet has dramatically different prices. Obviously, NYC, Washington DC, etc are nothing like Pittsburgh.

Originally Posted by BrianTH

Note that in many major metros, the norm can be ratios of 4-5, or considerably more. In Pittsburgh you should stick to ratios around 2-3, maybe a little higher if you are willing to treat your house as a major luxury expenditure.

Those metro area with norms in the 4~5 tend to have a lot of wealth and a lot of immigrants both of which distort the numbers. But income/price ratios are only reliable for "normal housing", that is communities composed of households in the 90% percentile or so. It is this group that is essentially bound to its income, once you get into the top 10% you start to see more significant wealth which is not picked up by income/price ratios.

So as I was saying, the fact that the numbers may work out for the "average" Pittsburgh household provides me with no solace at all. My situation is far removed from the average Pittsburgh household.

Originally Posted by BrianTH

I think high end housing is just as relatively cheap here as other housing. It is amazing what can be a million dollar home in many larger metros.

I don't find this to be the case and I've been "shopping" around for a couple years now. When comparing Pittsburgh costs to other areas the price differential shrinks as you move up the housing market and the cost differences are entirely correlated with real differences in local economies, amenities, etc. So then the property taxes become increasingly burdensome as you move up the housing market, which has been my point here.

Originally Posted by BrianTH

and it may well be the case that Pittsburgh does a better job thwarting your tax avoidance schemes than other places you might consider.

Its not that Pittsburgh makes it hard to thwart tax avoidance on any sort of technical front, its that the thwarting has no desirable consequence for both me and the region. On the other hand thwarting federal economy taxes can benefit me (e.g., retirement savings, buying a home) and can benefit the general economy (e.g., making capital investments instead of realizing income).

Also, it should go without saying, one can thwart Pittsburgh's tax system by simply not living there. That doesn't benefit Pittsburgh either.....

Originally Posted by BrianTH

There are a number of prosperous U.S. cities that have recently been on a slow-growth path...Booms aren't necessarily a good thing in the long run, as many places recently have found out (it is one thing if there is a fundamental reason for the boom, another if it is just a speculative bubble).

A number? Great...so name some. Remember, I'm asking about major cities that have never experienced a property boom. The fact that a city, today, is slow growing is irrelevant to this idea.

Actually booms are great in the long run, its the short run (the bust) that is painful. Indeed, I'd imagine many of the amenities that kept you in Pittsburgh were created during Pittsburgh's boom days.

In terms of the most boom, that was of an entirely different character. The most recent boom was at the heart of it a credit-boom and it merely took shelter in real estate. That sort of boom isn't desirable. What I'm talking about are booms in local economies/property markets, these types of booms created every major city in the US.

Originally Posted by BrianTH

and in fact if anything Pittsburgh's population has turned around a little sooner than expected.

Turned around? Sorry, I don't follow. The population of Pittsburgh is still declining. Pittsburgh has done a bit better than some other rust-belt cities in terms of population decline, but that is largely attributable to the universities which provide a base level of economic support (not to mention population support from the students).

When were those universities created...another asset of Pittsburgh's boom....still paying dividends today.

[markson33]

I know that the city of Pgh has shown a decline in population over the last few years, but I believe that metro actually had a slight increase last year. It is expected that we will have population growth of 1% or so over the next few years.

Not that that makes much of a difference

[squarian]

Originally Posted by user_id

many of the amenities that kept you in Pittsburgh were created during Pittsburgh's boom days.

I think most people would understand Pittsburgh's boom days as being the quarter-century from the Lend Lease treaty, c. 1940-75. Speaking for myself, most of the amenities I value in Pittsburgh were created much earlier, in the Age of Carnegie, c. 1880-1910, but perhaps that's what you mean?