by James A. Bacon
There is a widespread sentiment among Virginia county officials that houses are money losers for local governments, especially when families have school-age children. Families do not pay enough in property taxes to cover the local share of the cost of K-12 education.
Neal Barber, president of the Community Futures consulting firm, endeavors to rebut that logic in a short essay appearing in a new publication, “The Effects of Housing on the Local Economy,” put out by Virginia Housing, a public-private housing partnership.
According to a widely held belief, a school child costs local government an average of $5,000 yearly in local government funds. Very few houses pay that much in personal property tax, says Barber. (The apparent discrepancy is even worse, I would add, if a family has two or more children.)
But that kind of analysis, says Barber, ignores the fact that the typical household pays personal property taxes on two or more automobiles, that roughly one in seven households pays personal taxes on a boat, and that households patronize local businesses that generate sales taxes and other local tax revenues.
Furthermore, he argues, a study of five regions around Virginia demonstrated that local governments, with few exceptions, collect more than enough from their property taxes “to cover the cost of educating the children that will reside in those homes. … Contrary to the common misperception, housing is not a drag on the local tax base but a contributor to the local tax coffers.”
I sympathize with Barber’s sense that there is something very wrong when incentives exist to discriminate against new housing construction, especially housing for lower-income citizens.
But I disagree with his analysis. Of course property taxes cover the cost of schools and other local government services! It can’t be otherwise. As the primary source of tax revenue over which they have control, city councils and county supervisors have no choice but to adjust property tax rates to cover the costs of government, whatever those costs might be.
Barber’s line of argument misses the point: It’s an unfortunate reality that if counties could zone out families with school-age children, especially those who live in apartments and tiny houses that pay very little taxes, they could (1) reduce the school-age population, (2) reduce K-12 spending, and (3) reduce the property tax rate for everyone else. In middle-class jurisdictions, that’s a winning re-election formula. Even when you take ancillary revenue sources like sales taxes and personal property taxes into account, there will always be an incentive for local governments to discourage lower-cost housing.
The proper line of argument is that local governments have no business restricting the supply of housing for certain classes of citizens.
The underlying problem is that the power of local governments to restrict the supply of housing has trumped the right of land owners to build what they want on their property. Free markets between willing buyers and willing sellers should determine where houses are built, not the government. If home builders perceive a demand for lower-priced housing in a particular city or county, they should allowed to build it (as long as they pay their location-variable costs, a very different discussion that should not distract us here).
Zoning policies that discriminate against lower-income households impose hidden costs on others. Unable to find affordable housing in County X, families must live in City Y or County Z, which doesn’t have such policies. That often means workers must drive further to reach their jobs, at a cost of time and money to them. In order to attract labor to work in positions ranging from teachers and firemen to store clerks and hamburger flippers, employers must pay higher wages or suffer labor shortages. Barber should be focusing on on those externalized costs.
I can understand that, politically speaking, my libertarian approach won’t fly. The primary source of net worth for most American families is the equity in their house (this is so, even after the housing crash). They viscerally oppose anything that might threaten the value of their house, and that means objecting to any proposal that would allow people with lower incomes to live anywhere near them. The average American associates poor people with higher levels of crime, lower quality schools, higher levels of public support — all of which means higher taxes and lower property values for middle class residents.
Appeals to the pragmatism of local government officials — “housing really does pay its own way, you just haven’t figured it out yet” — are not likely to be persuasive. We have to argue on first principles. County exclusionary policies (a) violate a land owner’s right to do what he pleases with his own property, and (b) they discriminate against lower-income households. Both are just wrong.
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