I'd be careful about directly comparing prices, real estate taxes (by rate) in Texas are significantly higher than in California. They might be overall lower given that the real estate prices are cheaper, but Texas is #6 in the country for real estate taxes while California is #34[1].

[1] https://taxfoundation.org/high-state-property-taxes-2021/

> I'd be careful about directly comparing prices, real estate taxes (by rate) in Texas are significantly higher than in California.

The two are directly linked, so this makes sense. A higher property tax means that the future annual rent (real rent if you're a landlord, imputed rent if you're a owner-occupier) you get from property will be reduced, so the capitalized present value will decrease correspondingly.

But California makes up for it with other taxes where Texas does not.

Like most things, it depends: https://www.bloomberg.com/opinion/articles/2021-05-19/wait-c...

"Effective" rates. It accounts for prop 13, so you aren't getting .7% if you're buying a brand new home.

My mom has a million dollar home in California and pays around 1.5k/year in property taxes because she's owned it since the 70s.

Whereas we paid about eight times that last year, and our house isn’t valued as high.

EDIT: and we’ve owned this house since 2008.

And we’ve owned this house since 2008.

If you don't want to pay property tax then just rent. Texas rent is nowhere near CA

As a renter, you're paying 100% of your landlord's property taxes.

No you're paying rent.

The idea that property tax is passed down to renters 1:1 is just something you made up.

The concept you need to look into is called tax incidence: https://www.maxwell.syr.edu/uploadedFiles/cpr/efap/Notes%20o...

I'd be careful about drawing the conclusion about rent shifting on that paper you linked, which really just says Carroll and Yinger's 1994 paper was right. Carroll and Yinger's paper is not unchallenged in economics (there are so very, very many papers on the problem), and it's entire line of reasoning is basically:

1. Property owners make a lot of money and own a lot of property.

2. When you increase property taxes, people who own a lot of property pay a majority of that increase.

3. Rent prices don't immediately increase 1:1 when property taxes rise, based on one data set.

Basically, property taxes are mostly paid by people who own property. Most property is lived in by the owner. So property taxes aren't regressive, since rich people end up paying the majority share.

People have been trying to create a model for the impact of rent shifting since the 60s. No one has a good model yet. It's hard to model.

If I sign a lease for 2000/mo, and the state increases property tax on the owner, the owner can't immediately increase my rent. Rents increases are generally governed by local laws. But over time, they can raise it, and it can be reset when the current occupants leave.

So an owner's profit margin takes a hit when property taxes rise, and renters bare a smaller percent of the burden of the new tax than the absolute amount raised in the short term. Long term, renter's are still covering the owner's total cost of that property, otherwise the owner would be losing money on the property – which, if that were prevalent business practice, we wouldn't have that many landlords.

So yes, renter's pay property tax.

Not one to one though, it sounds like you know what you're talking about but the markets are of course decoupled. Home owners would like to pass along the entirety of their property tax, but whether they can or not will depend on the rental market, possibly renters can't afford the extra amount of the property tax and so adding it all makes the rentals unattractive and so the homeowner can only pass on some of the tax.

It’s true that landlords don’t directly pass property taxes down; this is part of why taxes on rent are occasionally floated as a way to make being a landlord less profitable.

But, definitionally your rent must cover the mortgage and property tax of the property you occupy, plus profit. If you rent is less than property tax and mortgage, the land lord is underwater and will soon sell to someone else who will charge more or evict you for remodeling.

It must not. "Being underwater" is a state that describes the value of your asset vs the loan. If your house is worth more than the mortgage balance then you cannot be underwater even if you don't rent it at all.

In the current situation, when the realty appreciates at >10% per year (in Austin, at least) it's not a very smart decision to sell or renovate the house if you cannot find a tenant willing to cover all your expenses.

For example: Zillow shows my house appreciating 10K per month, my mortgage+tax+insurance is 3K, assuming Zillow is in the right ballpark, it makes sense for me to keep the house even if I can't find tenants for 3K (similar houses in the area used to rent for 2K-3K last time I've checked).

Yes, your landlord can rent out for a loss when the house is gaining double digit percentages per year, assuming they’re well capitalized[0]. But let’s be honest, how long can houses gain 10% per year? And how often do you really think landlords rent at a loss in such hot real estate markets?

Under less insane circumstances, a land lord who is charging less for rent than the house costs to own is going broke. As a general rule most land lords rent to make a profit, and therefore won’t charge rent below the cost of ownership.

0 - A poorly capitalized land lord will still go broke in this circumstance, since they’ll eventually fail to pay their mortgage without refinancing.

10% per year is not the threshold, as long as the cap gains are more than expenses it's profitable to lease at any amount >= 0. Before I moved to Austin I used to live in a ~1.5M house in Los Angeles, paying ~2K rent for 10 years or so.

It's not relevant to the current discussion though. Right now rents are lower than mortgages in general so the assertion that the tenant pays all landlord's expenses is demonstrably false.

I think you’re making a lot of implicit assumptions here. For example, in this discussion there is no guarantee that the average current mortgage is the same as the mortgage held by the current landlord charging the prevailing rent. In my experience it’s pretty typical for rented houses to not be recently purchased.

If you have evidence that it’s the norm for landlords to rent below their operating costs, by all means provide it. But from what you’ve provided so far, I am unconvinced.

I gave you an example of my house, have not I? If I were interested in renting it I would not be "underwater" and any non-negative rent would be better for me than selling/renovating/keeping it off market. Note that I am not making a statement about every house, to rebut your assertion that all renters pay no less than the landlord's taxes + mortgage + insurance it's enough to show some (even one) counter example and not to prove that all or, even, typical renter does not do so. There are certainly rental properties that make profit on rent but I have few friends who rent their houses at less than their own expenses because they just cannot find tenants willing to pay more.

Seeing how in general rents had been lower than mortgage for quite a while it's sane to assume that I am not an owner of a unique house with a selected group of friends who are in this completely extreme situation.

I do not find your house to be persuasive for larger trends, no. I responded to the other bit already.

> Note that I am not making a statement about every house, to rebut your assertion that all renters pay no less than the landlord's taxes + mortgage + insurance it's enough to show some (even one) counter example and not to prove that all or, even, typical renter does not do so.

Don’t be a pedant, we were clearly talking about the typical renter.

It was not clear to me, I thought you made a general assertion about the economics of real estate which is false on its face. I am not equipped to talk about typical renters since I don't have data. All I can find is the Census statistics showing that average national rent is less than mortgage: https://www.census.gov/quickfacts/fact/table/US/HSG860219

I don't think I made up the idea that landlords generally don't lose money renting their property. Higher taxes might reduce their profits in a competitive market, but renters are still paying the property tax for the landlord. Tax incidence theory also leans pretty heavily on the assumption that there's healthy competition in the rental market. In most major cities that's a very unsafe assumption.

Taxes for that home in TX would be equivalent to a $1.8M+ home in CA, though (and raise every year with the market), so it's not as simple as comparison. The monthly mortgage payment for a $900k in Austin is probably comparable to a $1.2-1.3M home in CA.

> The monthly mortgage payment for a $900k in Austin is probably comparable to a $1.2-1.3M home in CA.

Are you talking about paying property taxes via an escrow account that your mortgage lender takes care of for you? That's not your "mortgage payment", which is a function of your loan size, interest rate, and term, and nothing more. The monthly mortgage payment (assuming same term and interest rate) is the same in CA and TX for the same amount of loan.

(I guess we could also talk about things like PMI, but that won't raise your payment by all that much.)

Property taxes might be quite a bit higher in TX, but I'm not convinced a $900k home in TX is the equivalent to a $1.2-1.3M home in CA. I would expect that's closer to $1.7-2M, and then the property tax amounts end up being not that different.

Not to mention that the property taxes in TX are not charged on the price but on the assessed value. It's same in CA, I imagine, but the assessed value in CA is >= price, while in TX the price is not disclosed to the government and the assessment lags the market price by quite a lot.

Not necessarily true based on the locality. In Dallas, for example, assessed value will (usually, unless you buy in all-cash off-public-market) be set to your market price when you buy it.

From there tax basis more or less tracks market value, but it’s possible to protest the assessor to keep it below market value (though it’s time intensive and requires in-person hearings).

To get ahead of any artificial attempts at deflating tax basis, Dallas also maintains a comprehensive public lot value database that assigns a land value for tax purposes based on census tract (initially likely a product of redlining, but now based on average census tract market value) — so, similar to a pure land value tax, even if you’re sitting on an unimproved piece of land, you’ll still be taxed similar to the average home in the neighborhood, which has the effect of setting a tax floor.

Austin is similar, I believe. Most cities have to, as aside from sales tax property tax is their only source of revenue, because any sort of income tax is constitutionally banned.

Non-disclousre is the state law in Texas, so unless you report it yourself, how does the county know what did you pay in Dallas? I've looked on Zillow and some houses in Dallas do seem to show price per sq. foot on sales (no total price though) and some don't. Same with Austin, I figure if the price was the public record it would have been shown as same as it shows on houses in CA - the price of the house on every time it's sold so I doubt what you say is true. Perhaps you meant it might be set to the listing price?

Indeed, I've also checked it out.

No income tax, but property taxes are at least 2% of the assessed value, and sometimes 3. You'll see that on the Zillow listing.

It is nice though that you can control your taxes via choice on a property tax, not much with an income tax.

But ultimately it seems like they get you one way or another, through sales, Income, and or property tax.