[vkou]

Is real estate in America a great investment[1], when despite owning property, you have to pay 2% of its value in taxes/year? In a mere 50 years, the government will own your entire property!

China's property is leased... But as a converse, it doesn't have any property taxes.

At the end of the day, the difference between a fixed-term lease, and a property tax are largely academic. (With a bit of economic weirdness, close to the roll-over period of the lease.)

[1] Which also begs the question - should real estate be a great investment? Nobody cheers when the price of staples and groceries goes up...

[grey-area]

Nobody cheers when the price of staples and groceries goes up...

Because nobody buys groceries with massive leverage over 30 years.

People buy houses because they count on inflation to raise the nominal value of the leveraged asset far more than the interest they pay, and usually in the long term that works out and they pay less than they would renting (not always, and renting has upsides too of course).

[AnthonyMouse]

> People buy houses because they count on inflation to raise the nominal value of the leveraged asset far more than the interest they pay, and usually in the long term that works out and they pay less than they would renting (not always, and renting has upsides too of course).

The problem of course being that for this to be true, housing price inflation has to be greater than general inflation, which implies that nominal housing prices increase faster than nominal wages.

Which is what has happened, but that isn't sustainable, and the math is pretty harsh.

If housing prices increase by a given percentage at the same time as they increase as a percentage of wages from 30% to 45%, then for them to increase by the same percentage during a period of time with the same level of wage growth, they would have to increase from 45% to more than two thirds of wages, which is implausible. To increase by that percentage again would leave them at more than 100% of wages, which obviously can't happen.

So the trend of housing price appreciation above general inflation is inherently temporary. It has to end eventually, if it hasn't already. Note that current housing prices were never really allowed to crash in 2008 and continue to be artificially propped up by low interest rates. So we may be preventing them from falling presently, but that doesn't mean they've got a lot of room to grow any further.

But people who already own property may want them to, or be expecting them to. Those people are likely mistaken.

[grey-area]

The problem of course being that for this to be true, housing price inflation has to be greater than general inflation

In real terms I agree house prices oscillate around zero growth (sometimes with decades long periods of higher or lower growth).

However, the leverage makes a difference. If you know bank policy is constant inflation, taking on large debt to buy an asset which tracks inflation makes sense in the long term. Over time the debt becomes less and less significant, and the asset price and yield tracks inflation/wages.

If you could borrow multiples of your wage at low interest to buy stocks for decades the same argument applies - the yield in future will outstrip the cost.

[cabaalis]

> Nobody cheers when the price of staples and groceries goes up...

Except those who hold the groceries and staples? I'm no investment expert, but my understanding of the value of real estate is due to the scarcity (when taking into account the cost of improvement and demand.)

[YokoZar]

On the news you'll hear that the housing market has "recovered" and is now "healthy" when prices increase.

When food and gas prices go up we don't say that. We worry.

The narrative has been completely taken over by property owners.

[ksec]

>you have to pay 2% of its value in taxes/year?

Sorry for being naive, that is the first time I heard of property tax in % of value every year! No wonder why so many comments were referring to what happens to China when they introduce property tax.

Coming from places where we have tax, but none of them are as high or based on its property value. Isn't that basically "renting" the property? For a million dollar value flat I have to pay $20K Every year? Or $1.6K every month? That is pretty insane if you ask me.

And why are people continue investing in US housing? So these tax, assuming being paid by its owner, are basally passed on to the lease? So a rise in property value will add an extra 2% effect on its rental pricing?

I would have thought property tax should lower the interest of investment in property, but that doesn't seems to be the case in US.

[imtringued]

Okay this sounds crazy, why on earth would anyone tax the market value of the building or apartment? Generally the idea is to tax the land not the property. This way multi family homes can split the tax burden vs a single family home paying the full tax.

[vkou]

You're right. Taxing the cost of the land + the cost of the building is insane.

Unfortunately, that's exactly what every municipality in the United States is doing, right now.

Most economists believe that only taxing the value of the land would be better public policy.

[CWuestefeld]

pay 2% of its value in taxes/year? In a mere 50 years

<pedantic> More like 36 years. </pedantic>

There's a quick trick to a good approximation for this. The rule of 72 says that you can estimate the time it takes a compounded investment to double by dividing the interest rate by 72. 2% for 36 years will double the investment (or, since your actual statement was going the other way, strip it to nothing)

See, for example, https://www.investopedia.com/ask/answers/what-is-the-rule-72...

[ves]

There’s no compounding here, since the property tax is a fee and not a reduction in the value of the asset, so I don’t think that’s applicable.

[xxpor]

It's not a direct reduction in value, but I would think if the fee went away the value would still increase.

[pesfandiar]

That's for compound interest. In this case, assuming the value of house stays the same, it does indeed take 50 payments of 2% of the total value until you've paid the full price back to the government.

[wolco]

Assessed value which is usually lower than market value.