Portland City Commissioner Erik Sten has proposed a STATEWIDE real estate tax to fund more affordable housing projects in Portland. Apparently he's under the impression that the key to increasing homeownership and affordability for the middle class is to subsidize more rental housing (with income restrictions excluding the middle class) by increasing potential homeowner's transaction expenses. An amazing read. Just about every comment Sten makes in the article is completely irrational.
posted by Anonymous at 2:28 PM
1 Comments:
I have been in an online discussion with a number of Oregon economists regarding this, and ran across this fine summary (from someone else):
I suspect this is the latest of numerous market interventions that have been or will be proposed to redress problems caused by previous interventions in property markets in Oregon. METRO is considering a levy to punish holders of vacant land in the UGB who have chosen not to develop their land, etc.
So, the obvious rebuttal is to urge revision of the policies that are making housing less affordable in the first instance. As demonstrated in a study for the National Center, the burden of constrained site supply falls disproportionately on the poorer household. (See: www.nationalcenter.org/NewSegregation.pdf).
As to the “recording fee” approach itself, the burden will be shifted forward to homebuyers if flow demand is more inelastic than flow supply. Even if not all of it is shifted forward, on some tiny margin it raises the barriers to entry into the housing market. It definitely will be shifted forward to borrowers in refinancing because the mortgage market is a national one, and supply is highly elastic with respect to mortgage yields. So, you end up with a policy that, on some margin, impairs housing affordability.
I don’t think you need to know the exact elasticities to make these arguments. Proposition 13 in CA has a feature that, in effect, introduces tax on turnover; unlike in Oregon, if you sell your home in CA, the basis for the one percent property tax is reset to the new market value. In effect, the seller loses a valuable “option” upon sale. Therefore, the flow supply curve shifts up (by a lot, in this case, since the implicit “tax” on turnover is so high). This definitely has had the effect of elevating CA home prices and slowing turnover.
I have a feeling that the State bureaucracy would have trouble implementing a 15 dollar fee for less than 15 dollars, but even if the there was net public revenue from the fee, its only effect will be to create a few more bureaucracies with little flowing back to low-end consumers of housing.
The best way to “produce” low income housing is to encourage production of high income housing and let the poor folk buy the good used stuff. But you will never get a politico to embrace trickle down.
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