Councilors propose protecting long-time homeowners from taxing effects of gentrification

City councilors Steve Murphy (at large) and Bill Linehan (South Boston, South End) today will propose setting a limit on how much a homeowner's property taxes can rise from one year to the next.

The two argue that residents in areas undergoing gentrification are being unduly burdened by the fact that as foreclosed and distressed properties get renovated, their property values - and so their property taxes - are going up too fast. In a request for a hearing on a "circuit breaker" provision, they add:

Increases in property tax bills being seen in the post-recession real estate market have not been fully matched by a bounce-back in the employment sector, making it difficult for many long-time homeowners to continue to afford their homes.

Their proposed limit would be on top of the tax break homeowners already get. They did not detail the potential costs to the city of their idea.

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Comments

Fine, As Long As....

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Those receiving the tax break, which is effect a public housing subsidy, sign a waiver disallowing any refinancing of their property using a value that is achieved through what the gentrification market is doing to average sale prices in the neighborhood.

That is Nana can't get a tax break because she has owned the single family three story house on Pacific Street for 55 years and then take money out of the house for repairs and/or reverse mortgage.

It is only fair and you think people should be forced to live up to the expectations of market forces of housing, then join me for an all out push to end public housing, housing vouchers, and all the other handouts that leave certain islands in this city; Castle Square, Villa Victoria, Camden Street, Academy Homes, Bunker Hill, Tibbetts Town, portions of the West End, etc. outside of real estate market dynamics.

I don't mind the taxes, but...

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I don't mind the city re-assessing property when neighborhood property values have been increasing, but he's right that increases can be drastic and sudden. Every house on my street got a notice of re-assessment a couple of months ago, and while the old values were definitely below market, they doubled the taxable value of our place with 6 weeks notice. Most folks can't find that much money that fast.

This is why I've been so involved in this issue

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Happened to me a few years ago - fortunately at a time when I could afford it.

This is a good intentioned step - but you need to be careful how you implement it. A couple of issues:

1)Per the poster above - if you get a break on a cash flow basis, in fairness those taxes should be recovered up sale of the unit and the new owner should be subject to the current valuation taxes.

2) All else being equal, taxes should only go up a maximum of 2.5% on any single property. The reason it doesn't is because taxes go down (or not up as much) on other properties and these people have to make up the difference now that they "own" a bigger piece of the city's pie. If you keep the taxes down in areas where gentrification is causing values to rise, it means you artificially keep taxes up in other parts of the city. Is this fair to downtown owners who have borne the brunt of this for over a decade and now that it is potentially hitting other parts of the city we have to continue to hold up the fort?

There's more - but you have to do this right or you can end up making things a lot worse.

Also Stevil.....

I was reading a complaint from someone on another blog about their Brookline real estate taxes going from 5K in 2002 to 15K in 2012.

Now 15K is a lot to pay in taxes each year, and I feel as bad as the next person about the elderly having to shoulder this burden without a full income. But it also means your house is probably worth a million bucks or so, and people are willing to buy those properties at those values.

Whether nor not that tax money is going to the right place or not.....this is where Stevil comes in!

Fine, But...

I see these types of taxes like the IRA vs. Roth IRA discussion. If you want to pay lower taxes now, OK, but you must repay this discount when you go to sell or refinance. People hate gentrification when it comes to pay their property taxes but they love it when it comes time to cash in on their place. You can't have it both ways.

When I lived in Brookline I would attend selectmen meetings and get yelled at by old hags who would claim anything I was suggesting could lower their property values as that was the only thing that mattered to them. Really infuriating.

Occupancy requirement

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Not sure if there will be an occupancy requirement for this. Otherwise, what you'll have is property owners hanging on to properties in perpetuity at low tax rates, but renting them out at market rates for a tidy profit.

I also echo other commenters, that the taxes should be deferred and recovered at the time of sale, not excluded entirely.

yeah, let's give a tax break to the people who cost us the most

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This is nothing more than a ploy for senior citizen votes.

Remember, folks: senior citizens cost us more than anyone else, and most of them are cashing in on the rising property values by renting out their properties.

I wish the city would do something about this, and all the landlords who lie to the city about their primary address...

Nothing to do with senior citizens

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The city council doesn't act when tax increases hit the "rich" or even the old. They react when taxes hit THEM and their neighbors. For example - a few years ago they turned a blind eye to skyrocketing downtown taxes. However, when the tax increases started to creep out to the neighborhoods they bumped up the residential exemption - pushing most of that burden onto landlords and some onto owners of higher priced, mostly downtown homes/condos. This looks like another attempt to hold down their and their neighbors taxes - my guess is they will apply this to owners only - as some have suggested. This may be a negative for downtown owners where prices may be going up, but at a slower rate than places like JP and Southie (I'm surmising - don't know for sure). A move like this will keep the burden on the downtown owners at least for a time unless of course there is another surge in downtown real estate - which would be hard given the stratospheric prices we have.

If this is done right, it is long overdue. Done wrong and it's political chicanery.

I disagree. Sigh...

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These people, in an increasing market, would most likely be able to refinance their houses in that increasing market. Also, it's just not fair to other taxpayers.

Don't some towns allow the

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Don't some towns allow the elderly to apply for a tax relief program, where they get a tax break, and the city puts a lien on the property for that money, payable when it's sold?

Yes, my mother took advantage

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Yes, my mother took advantage of that in her town. I meant her being able to stay in her home of 50+ years, which meant the world to her (and me).

Circuit breaker

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From the City web site

Circuit Breaker Income Tax Credit
For Persons Age 65 and Older Low to Moderate-Income Seniors

The Circuit Breaker Income Tax Credit provides tax relief for moderate and low to moderate-income senior citizens. Qualifying senior citizens may claim a credit in their state income tax returns for the real estate taxes paid on their Boston residential property, effective for the tax years beginning on or after January 1, 2001.

Not sure

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I am not sure this is a good idea. California law (Prop. 13) limits real estate tax assessments based on the value when purchased, so long-term owners get a huge break at the expense of more recent buyers. Over time, it gets more and more distorted.

The city won approval to change the classification tax rates a few years ago when commercial values were dropping and residential assessments were soaring. I believe this was supposed to end after a few years, with the caveat that it would not revert to the previous, more favorable to residential property rate. The residential benefit would still be there, but not as pronounced.

Would an increase in the residential exemption be better?

The proposal is worth discussing. Speculation and gentrification can change a neighborhood very quickly, often not for the better.

I agree: we need the revenue

Everyone is talking about the tax side, but we do need the additional revenue. When I read this, the first thing that occurred to me is that these sorts of caps were a disaster for California's school, parks, health, etc. For all the people who don't want the tax increase, what is the alternative (and magical incantations of 'cut waste' aren't serious)?

That's not how it would work

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Under our system, when you take steps to lower one person's taxes, somebody else's goes up. There is never any loss of revenue. Think of the total tax levy as a balloon. Ever year we add 2.5% more air plus a percentage (usually about 2% more) for new construction. The balloon ALWAYS grows on average 4-5%. Our taxes in total have gone up about 60% in a decade and residential taxes have gone up about 100% (some portion of this is new development but most of it is taxes the commercial used to pay but under formula the residents now pay).

And that's why we don't need more revenue - this has been going on for well over a decade - but the economy is not growing that fast meaning that a larger and larger percentage of our economy goes to taxes and surprisingly we have about a thousand fewer employees than we did at the peak (is anybody missing any services?)

Lack of tax revenue is not the city's problem. We do have stagnant state aid and declining net aid (aid less fees that we have to pay to the state which have been increasing) and our "other" revenues - fees, fines and interest mostly - are increasing VERY slowly - about on par with inflation.

The big problem is if interest rates spike, commercial values would plummet driving tens if not hundreds of millions in taxes onto the residential sector just like a few years ago. We should be fine for FY 2014 (FY 2014 taxes are based on Jan 1, 2013 values). FY 2015 could be a nightmare if interest rates go up though.

But Stevil.....

You and I know (I get a feeling you own some property in the area and rent it like I do), that you are making more money in the long run. The Boston real estate market has still been very profitable for those who own and rent, even if you bought within the past 10 years.

Assessments being fair is the biggest issue here I think.

I agree with you Pete

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As I often do - you are definitely one of the sensible ones out here. First, for the record, I do not own any investment property in the city - just my own piece of the rock. Yes people are making money - but you can't just break off a piece of wallboard and sell it or on a more serious note it's often hard to refinance - even if you have a ton of equity - if you have taken a hit to income - job loss, illness, retirement etc.

The main purpose for a law like this is not to give someone a break on their taxes (I advocate paying them later) - it's to help manage cash flow so that we can have a more stable neighborhood and long term residents can stay in their homes.

Note - it's very easy to see your taxes go up a lot while your value doesn't increase much. 25% of the taxes we pay today are a result of the dotcom era boom and bust of the office market and have little/nothing to do with home appreciation. This could easily happen again - won't go through the numbers, but a return of interest rates to historical norms would push hundreds of millions of dollars in commercial taxes onto the residents in one or two years. That would crush a lot of people in Boston - and the real estate market. These kinds of circuit breakers wouldn't prevent it from happening - but would at least extend it out over time.

Words of wisdom to any councilors or their staff reading this - you better be REALLY careful how you do this, if you do it at all. You are playing with gasoline - both financially and politically. Do it right and it could be a good management tool for the city. Screw it up and it could blow up in your face. This is extremely complicated to pull off correctly.