"Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.
-Benjamin Franklin
Ben Franklin wrote those words in a letter to Jean-Baptiste Leroy in 1789 and they still ring true today.
The Travis County Appraisal District has recently published the 2015 tax appraisals and many homeowners are shocked, if not downright outraged. As home values increase, so does our tax burden.
According to the City of Austin's proposed budget for fiscal year 2015, “the average Austin area homeowner paid a property tax bill of $3,072 in the 2008 fiscal year. In the coming fiscal year, FY 2015, that same homeowner will pay an average of $4,300 in property taxes, representing a 40 percent increase over the period.” (texaspolicy.com)
In 2014, Austin City Council reduced the property tax a meager amount, something less than 2.2 cents per $100 valuation. The city simultaneously increased fees for energy, water, resource recovery and taxes. Increased fees combined with increased appraisals meant most homeowners saw an overall increase in their tax bill.
Austin’s City Council is currently kicking around a tax exemption that proposes to grant a “generous” homestead exemption of 20% over the next 6 years. As good as it sounds the exemption is being met with much political to do over how it will be dispersed between Austin’s 10 districts. Austin American Statesman reports that “more affluent districts will get the lion’s share”. If implemented in 2016, the new exemption will only allow for $1 in tax relief for lower income districts like district 2 (Southeast Austin) and wealthier districts, such as district 9 (NW Hills area), will enjoy an average of $54 in relief.
Homestead exemptions only apply to homeowners in their primary residence. So what does all of this mean for renters? It means they will most likely bear the brunt of the tax increases. We purchased a home last year for $255K. We replaced the roof and some siding, added a bathroom, painted, and overall just cleaned the old house up. We went to refinance the house after the improvements and the bank appraised the home at $265K. Lower than we thought, but hey, this wasn’t a flip anyway. Now in the 2016 tax year, the home has skyrocketed to $325,194. Are we going to contest it? You bet your ass!
In 2013 our home in question was valued at 172,493. The 2014 value jumped 110,828 to 283,321. Where are we in 2015? A modest $41,873 hike to $325,149. Our homestead exemption only allows for a 10% increase on our actual tax burden which protects us as homeowners, to some degree. However, the City’s appraisal techniques feel more like mafia rule than civic responsibility. If the City of Austin can not get a hold of the valuation explosion and take advantage of tax hikes in between transfer of ownership, it risks undermining what makes Austin so great, and keeps us, well….weird.
In short, real estate ownership is still one of the greatest wealth generators in America. It still holds true that we are simply not making anymore land. Barring major financial collapse, there is not great relief in prices on the horizon. If you are looking to control your cost of living expenses, even in an up market, real estate ownership is still the greatest form of rent control.