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Renters feel the squeeze in Palo Alto
Original post made
on May 1, 2014
Palo Alto's housing market is known for its million-dollar homes and exclusivity. But for those looking to rent, the rates and lack of supply have begun to squeeze many out of the market altogether.
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posted Wednesday, April 30, 2014, 11:11 AM
Posted by White Collar Wage Slave
a resident of Walter Hays School
on May 2, 2014 at 3:10 pm
What is sad about all the landlords and high rents is that Palo Alto is being denied much property tax income. Even though I have always rented in Palo Alto, I would like to see if there was a way that we could implement a renters' tax. As of now, landlords have been enjoying all the fruits from the increase in rents, while the property tax base has not been expanding. Also, renters, if they have children, will use more resources than what the property tax being paid by the landlord would cover.
As an example, imagine a house in Palo Alto that currently has an assessed value of $200,000, so it is paying $2,000 a year in property tax. If the landlord were to sell the house, he/she could sell for $1,500,000, so the property tax would rise to $15,000. In essence, Palo Alto is being denied $13,000 a year in property tax because the landlord chooses to hold onto the property instead of selling it. The lack of sales velocity in the Palo Alto home market has kept property taxes lower than they otherwise would be.
Let's say the landlord is renting the house for $6,000 a month. The landlord can choose whatever rent he/she wants, and has chosen $6,000. In essence, the landlord has just given us what he/she believes the assessed value of the house is. If someone else were to own the house, and we converted the $6,000/month into a mortgage payment, we could say that the landlord has assessed the value of the house at $1.25 million. A $6,000 monthly mortgage payment on a 30-year mortgage with a 6% interest rate yields a $1 million present value, then divide by 0.8 to assume that you would also have put down a 20% deposit, leading to a "purchase" price of $1.25 million.
So, from an actual assessed value of $200,000, we get a calculated assessed value of $1.25 million, and Palo Alto gets an additional $10,500 in property tax. A landlord would pay the higher of the actual property tax or the calculated property tax each year.
Some other points:
1) This system would only apply to actual rental properties. Owner-occupied homes would not be subject to this assessment. We could cross-reference the names on utility bills against the names in the property databases to determine what properties are owner-occupied and which ones are not.
2) As a renter, I recognize that this may increase my rents, but then again, it may not. Rental prices are based on both what landlords want to receive and what renters can pay. While the additional cost of the calculated assessed value will be borne by the landlord and the landlord will certainly pass that cost on to the renter, I doubt the entire additional cost could be passed onto the renter. In my example above, could the landlord raise that $6,000 rent to $7,000 (to cover the additional property tax)? Likely not.
3) The chance of this renters' tax passing is probably nil. I understand that more than 50% of the residents of Palo Alto are renters, so there must be quite a number of landlords who would be against this. And I don't know if renters would want to vote themselves in a tax.
4) Then again, this can be a real test case of Palo Altans' liberal values. Are we willing to tax ourselves more? In actuality, my plan is one of tax fairness, more closely equalizing the property tax between housing that has new occupants (it just so happens that one set of occupants rents and the other set owns).
5) Also, as many renters tend to be families with children who want to attend Palo Alto schools but cannot save up the money to buy a house, my plan would spread the burden of supporting our schools more equally onto the properties that are supplying much of the burden on our schools.