Housing Prices and Taxes

Recently, i've been seeing the woe is me Millennials complaining that their future was stolen, and other generations had it so much easier. True, the US has declined, and opportunities are more limited than they used to be (wait for what is coming, yes it does get worse).

They will say stuff like: the same house you bought for $100K now costs $400K. On the surface, that is true - but that is the wrong way to look at it.

A person bought a house (let's say in 1987) with a 5% 25-year mortgage (the mortgage rate in 1987 was more like 9+%). Straight inflation alone of December 1987 price would put it at $264,896.88 (yes, the US dollar lost more than 63% of its purchasing power since 1987). Once you figure out that they spent 169+K on the mortgage, the prices look a little different. Then you take into account property tax, selling fees, and the gain is less. It is not reselling a $100K house, it is selling a $200+K house (w/at least $264K value). But why is it selling for $400K? See below for some potential reasons.

So why has real estate "gone up in price"? 

• Supply/Demand Conditions
• Increased Population and smaller household size (single people owning houses)
• Government regulations/zoning/red tape
• CPI significantly understates inflation, especially for long-term assets
• Speculation, Real Estate Portfolios, and Income Generating Properties
• Sizes, Acreage, etc. of houses/properties
• Artificially low interest rates for years (rate goes up, price should go down)
• Government debt and intervention

In some way houses are a store of value. Look at the value of gold in December 1987: $502.30 ($1,327.93 in today's dollars). Spot price when i was writing this: $1,935.89.  A $607.96 difference. Some of it is due to supply and demand. Some of it is due to an ounce of gold keeping its value compared to the dollar. How much, i'm not sure, but it is not zero. This seems far more pronounced before the US went off of the gold standard in 1971.

If a home retained more value than the inflation rate, that would suggest less of a gain. So, some of the price appreciation on the house would be from it keeping it's value - while the US dollar continued its slow plunge toward oblivion.

Things appear to be cheaper then than they are now. However, it is not a 1:1 comparison. Now, it seems like life is a subscription service. Remember, there is inflation (i like to use the BLS. GOV inflation calculator, as it allows me to calculate both ways - 1987 money in today's dollars and today's dollars in 1987 money). There are also a lot more people than there used to be in the US and more women in the work force (driving up prices while suppressing wages). Then there is more global competition.

Property Taxes:

i am not a fan of property taxes. It is more like renting property from the government (with ability to transfer title) rather than owning it. It kind of seems wrong to pay the government to use (or not use) something you should legally own.

So, if you have to keep property taxes, what do i propose?

First of all, there are two parts: the land and structures. Land can appreciate. However, houses should be seen as a depreciating asset (like a car). Here is what i am proposing

• Straight line depreciation every year for 50 years for the structure - regardless of owner. So, at year 51, the structural taxable value would be $0.00. The only property tax should be on the value of the land. A new main structure would reset this. However, improvements/renovations should not be considered in the calculation.