[nugget]

Part of what's keeping Chicago home prices low may be a relatively high property tax that's predicted to increase in the near future, in order to stabilize underfunded pensions.

There was an interesting discussion on HN about a year ago about the Greek debt crisis and how the Greek State had effectively increased property taxes to 6%+, to the point where prices cratered and the re-sale market in some areas froze up. I think the catalyst for the discussion was an article about heirs refusing to inherit certain properties because the hassle to sell, and upkeep costs in the meantime, just wasn't worth it. It made me appreciate that if things get bad enough, governments have a legal and fairly accessible mechanism for confiscating a large portion of the property wealth held by their citizens.

[kolbe]

Chicago also has a very weak job market in the tech space. Relative to the Bay, Seattle, LA and NY, it has practically zero noteworthy growing and innovative companies.

Most of Chicago's top talent is stuck at places like Boeing or Exelon where they make a good living in the low to mid six figures, but it's really hard to get a huge surge in home prices like in the Bay without employee equity going up 100x, which just doesn't happen with the large mature companies that dominate the landscape in Chicago.

In my experience, this lack of innovation sits squarely on the shoulders of the wealthy in that city. They have expressed very little interest in being educated in the tech space. For example, in 2013, when I tried to explain to them why a bitcoin brokerage could be a good idea, I had to try to educate them in ways that are totally unreasonable. How do you even explain what bitcoin is to someone who only understands basic arithmetic and whose tech chops extend to Excel and web sites? In the end they all just assumed I was pitching a scam, and I don't really blame them, given how the whole thing must just sound fake. But in the Bay, where VCs are run by really intelligent people who can go home to read and understand the white paper and who probably know more than the people they invest in, it's a wonderful starting point.

Lately, VCs like the Pritzker group have really opened up to taking risk at least, but they're kind of just throwing darts randomly into things they don't understand (see Outcome Health). We really need people like Larry Page and Gordon Moore (or whoever, you know what I'm saying) here to help allocate funds in productive ways.

[api]

I do not expect the pension to last. It seems like a failed socioeconomic experiment. Corruption and mismanagement play a role for sure but the big killer is increasing life spans coupled with declining fertility. With 1.5-2 kids per couple and an extra 20 years of retirement the math does not work. The only thing that could save it is crazy economic growth but that is unlikely.

[onlyrealcuzzo]

Exactly. It might not sound like a big deal if life expectancy increases from 70-75. That's only a 7% increase!

But, when the retirement age is 65, you're retired for TWICE as long. That's a huge difference. Either pension contributions need to increase AT LEAST two-fold, benefits cut in half, or retirement age is always set at life-expectancy - 5 years.

Not to mention, somehow now 62 is the new 65. Making the problem almost 3-times as bad.

[jamesblonde]

You'll be fine in the States. Life expectancy is decreasing - https://edition.cnn.com/2017/12/21/health/us-life-expectancy...

Meanwhile, in the rest of the civilized world, we are increasing pension age, replacing defined benefits pensions with defined contributions, and lots of micro effects. The pension system is, of course, workable. It just needs adjusting to longer expected lifespans and, of course, increased funding from people of working age.

[lotsofpulp]

No, the incentives of taxpayer funded defined benefit pensions (lifelong annuities for worker and spouse) are unsustainable.

Problem 1 is the inability to forecast 30 years into the future, problem 2 is the people whose money is being spent (future taxpayers) aren't in the decision making process.

Problem 3 is low voter turnout among non government employee populations, so politicians do whatever they have to make sure government employee unions vote for them.

Problem 4 is no requirement to actually provide accurate funding, because the costs will be understated in the first place (see problem 3), and the liabilities are far into the future so money will be diverted for other pressing matters.

If you think the above is not correct, all you need to do is look at the funding status for all the taxpayer funded pensions in the US, conveniently exempt from the rules that privately funded pensions have to adhere to (which made them disappear because it turns out they're too costly).

However, as long as the US can print money (I.e. have a powerful military), then they can inflate away all these debts the taxpayers have so just try to make sure your assets are inflation resistant, preferably in high cash flow businesses with barriers to entry that can sustain price increases.

[jamesblonde]

You didn't read what I wrote. My first point was the defined benefits are already phased on in the rest of the developed world. Your other points do not address the main point of whether the US can afford to pay pensions. Of course it can. Countries like Italy still survive, even while funding 25% of people in the old system (defined benefits).

[fallingfrog]

But those numbers are averages. You can't form your retirement plan to live to the age of exactly 75 no matter what the life expectancy is- the real value could be anywhere from 70 to 105..

[tacomonstrous]

>Part of what's keeping Chicago home prices low may be a relatively high property tax that's predicted to increase in the near future, in order to stabilize underfunded pensions.

Is it really noticeably higher than other comparable cities with good public transit? Also, in my experience, most people don't make real estate decisions based on underfunded pension liabilities.

It's more likely that prices are low for the simple reason that inventory is high: Chicago is geographically massive compared to its coastal brethren like SF or Boston. Even so, if you want to live in a 'hip' neighborhood like Lincoln Park or Wicker Park, you'll still find yourself footing a goodly sum of money. It's neighborhoods like Rogers Park or Bridgeport that are more reasonably priced. This is without even going as far as more denuded areas like Englewood.

[mercutio2]

Yes, the Illinois fiscal situation is dramatically, vastly worse than California or New York’s situation.

[tacomonstrous]

I was referring only to the property taxes. I'm of course aware of the severity of the pension situation both in IL and in Chicago Public Schools.

[mercutio2]

The contention among some folks is that since real estate is the only captive taxation target (people, and businesses, can leave) for Chicago, the only realistic future scenario for resolving Chicago and Illinois’s pension insolvency is to dramatically raise property taxes. That, in turn, suppresses demand for assumed in-future-more-expensive real estate.

Very Georgist!

[tacomonstrous]

I understand that. I'm just asking for actual evidence of this a) happening, b) dampening current property values.

[mercutio2]

Well I, for one, grew up in Chicago, great city, but wouldn’t consider buying real estate there specifically because of the fiscal situation, so you’ve got one data point for reduced demand.

[dredmorbius]

That may be a (somewhat unintentional) Georgian Land Tax:

https://en.wikipedia.org/wiki/Land_tax