Monday, October 29, 2012

Dave Wahlstedt

I'll try to be brief because I don't want to do too much economic-talking-over-heads.

What I never understood in Minneapolis was how property owners were unable to link their excessively high property tax bills with the pro-spending politicians they kept voting in.

And trust me, people, Minneapolis property owners were pissed (and they still are).  Property taxes increased by 300% when I lived there on my dinky little duplex.  The services did NOT increase 300%.  Of course we got things like $50,000 drinking fountains, "Walk Ambassadors," green roofs, all politically correct and liberal things, but of course none of the property owners that paid for such waste benefited from it.

But the real reason (and it isn't political)  I'm writing this piece is to try to explain to everybody (liberals, conservatives, liberatarians and greenies) is why you should be afraid of increasing property taxes and should be voting for Dave Wahlstedt.

Namely, the value of your home or property.

Without going into a lot of economic theory and whatnot, in short what drives the value of an asset (be it your home, stocks, a business, etc.) is the fact it generates some kind of income.  Yes, I know your home doesn't generate income, but it theoretically does and can in the form it saves you rent or it could be rented out.  This technicality aside, stick with me.

The reason why income is the only thing that gives an asset value is because why else would somebody buy it?

Nobody is going to buy a rock from me.  "Cappy's Rocks" would not do well because rocks unto themselves do not generate income.

Nobody is going to buy sticks from me.  "Cappy's Sticks" would not do well because sticks, unto themselves, do not generate income.

But somebody might be a stock from me.  Stocks pay dividends.  Stocks generate income.

Somebody might buy a business from me.  Businesses generate profits.  Businesses generate income.

But what if you tax a stock, dividends, profit or income?

Say I had a stock and it paid $5 a year in dividends.  Depending on the market, the price of that stock might be around $20.  But if you tax my dividends and I only net say, $3, am I still going to pay $20 for it?


Another example are pre-1958 Cuban companies.  A bit obscure of a reference but the point is still the same.  Say you had a rum company down in Cuba.  It makes money.  It's profitable.  That business has value.  So to an acquiring company or just any ole investor they would be willing to pay a price for that asset because it generates a profit.

Uh oh.  Here comes Fidel and Che!  And they now nationalize the company, effectively taking it for themselves.  All profits go to the glorious people's republic.  Does that business have any value any more?  No, why would anybody buy it?  Cuba would not allow any profits to be paid (plus communists just outright repossess the property).

The same thing is happening here (and across the nation) to our houses, our homes and our properties.

Say you bought your house in the Longfellow neighborhood for $200,000 back in 2002  And it could be rented out for $1300/month.  You couldn't keep all of that because you have to pay property taxes (and other operating expenses such as insurance, repairs, etc.).  Let's say the property taxes were $200 a month.  So you net $1100/month in rental income.

Uh oh.

Hennepin County and Rybak need more drinking fountains and bike paths and green roof tops!

So by 2012 your property taxes are now $600/month. 

Your property that WAS generating $1,100/ month in net rental income is now only generating $700.

That's a 36% drop.

Now, in economic theory (and reality) that means the value of your house should be 36% less, so roughly your $200,000 house is only worth $128,000.  And yes, you may not rent it out and not care about rent, but when somebody is going to buy it they are still going to look at the property taxes and not only say

"Whoa!  $600/month???"

They're also going to notice

"WHOA!  Taxes keep going up here!  There's no way I'm buying."

So even though you're not renting it out, the fact remains that house is no longer an asset, but quickly becoming a liability.  Specifically a perpetually increasing and never ending payment to the county and the city.

Now you may poo poo this basic economics lesson.  You may see that property values in Hennepin County are actually increasing slightly and dismiss this.  But hear me and heed this warning.

The simple example I provided about does not account for all the other factors that affect housing.  BUT IN THE END if property taxes DO NOT RELENT and DO NOT GO DOWN, Minneapolis WILL become a Detroit.

And the reason why is very simple. 

Liabilities do not have value. 

I don't care how nice your house is, if the property taxes keep going up (no matter what noble, liberal claptrap the politicians claim it will go to pay for) the value of your house will go down to ZERO.  Your single largest investment will have no value.

And the only people to blame for it will be the voters who kept voting to fleece themselves because they do not understand this basic economic lesson.

So vote for Dave Wahlstedt for commissioner.  Not because he's a conservative or a liberal, but for yourselves.


Anonymous said...

Thank you for showing the evils of property taxation.

I hate them for all your reasons, plus two more: Of all the taxes we suffer, property tax accrues regardless of our ability to pay.
Lose your job, spend months out of work, miss a tax payment and government can put you our of your home, adding to your misery.

Reason #2, Except in California, property taxes can rise with the market value of property, which is usually based on other people's ability to pay, not yours.

And when governmentdevalues the Dollar as they're doing now, Government can tax you on the "appreciated" value of your property.

Mike in Los Angeles

Take The Red Pill said...

"Liabilities do not have value."

Did anyone else besides me read this article (good job, by the way, Cap) and start thinking along a parallel mental path concerning how women and marriage have devalued for the last forty to fifty years for many of the same reasons and because of the same people and politicians?

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