Part 3 of the Property Tax Paradox in Berks County. If you have not read parts 1 and 2 visit my website at jeffreyhoguerealtor.com
A complaint without an idea forever remains a complaint. A complaint with an idea has a chance of becoming a solution. Before I list my ideas on how to lower Berks County property tax please note…The ideas I list are my opinion alone and may or may not be rooted in law or standard economic principles. They are simply ideas.
The present consideration in changing the property tax situation is riding on the Pennsylvania State House and Senate bill 76. The simple explanation is that the bill would be to shift the tax burden from real estate to income and sales tax. In my opinion any attempt to remove all property tax immediately or over a short period of time may be a mistake. Property tax is part of how home buyers are qualified for a mortgage by lenders. Take taxes away and property values may spike almost overnight causing a short-lived housing bubble.
Here’s why…A $200,000 home mortgage with property tax of $6,000 at 4.5% interest over 30 years and homeowners insurance of $60 per month produce a monthly payment of $1,573. This means the buyer would have to make around $52,000 per year to qualify for a mortgage loan. Remove the taxes ($500 per month) and the payment is only $1,073 and the home buyer qualifies at an income of $36,000 per year. Since most home buyers make a purchase based on their monthly payment and loan qualifications, there will be more buyers qualifying to purchase higher priced homes.
This change in buyer qualification would likely raise the price of housing in Berks County (supply and demand). This along with raising the income tax and adding a sales tax would greatly increase the cost of living in Berks County. I am not sure that job and income growth would keep pace with the increases. Sounds a little like the housing bubble that occurred between 2003 and 2006 doesn’t it?
Now for my thoughts on how Berks County can alleviate the problem of high property tax: First we raise the county transfer tax to 3% from 2%. Raise the county income and sales tax following a 10 year schedule. The additional income can be used to calculate the necessary school tax millage. This can be closely monitored so adjustments can be made to stabilize the abrupt increases we have seen over the past 10 years.
Give a 3 year tax abatement to anyone building a new home. Many people do not build because of the property tax they will pay on a new home. New home construction is the tide that raises all boats. When new home neighborhoods are being built it raises the value of resale homes because the new homes cost more.
No reassessment on home improvements under $20,000. Home improvements over $20,000 to $100,000 to be assessed at 25% of the value. Over $100,000 at $50% of value. Both this and the new home construction tax abatement will help job growth and revenue in the county.
I also have ideas on how local businesses can contribute to the school district they are located in and increase their business at the same time. This can be accomplished by monetizing intellectual property. More on this in a coming article.
Hopefully it will never come down to having to combine school districts. This would decrease the number of administrative positions and certainly create other challenges. We have some of the best schools, administrative bodies and teachers in Berks County. It may be time for us to take unilateral action to protect and preserve what we have without overburdening our seniors and all property owners in general.
Some have asked me why I am writing an article on taxation in a real estate section. The answer is simple. One the first things Berks County homeowners ask me is how much their home is worth. The second is how they can make it worth more. Lowering the property tax to the same level as the neighboring counties (About 25%) may do more than any coat of paint ever has.
Continue the conversation and share your ideas on this BLOG…