To Address the Housing Crisis, We Need a Fairer Tax System

Have you ever tried to play a game of checkers when your opponent is playing chess? I wouldn’t think so. But, according to Urban3, a data analytics firm, that’s exactly what we are doing when it comes to the housing market. The housing market is moving along in its game of chess while we try to beat it with our game of checkers—it just won’t work. 

“Everything is driving the prices up and creating an environment where people can’t afford homes,” says Joe Minicozzi from Urban3, referring to the way we tax and assess housing and how the supply chain creates a problem with affordability. 

Last week, we discussed how short-term rentals (like some Airbnbs) are being taxed as residential properties when a portion of them really function as commercial. The state of North Carolina (where Urban3 is located) isn’t tracking where these investment properties are, and multimillion-dollar businesses are functioning under residential property taxes instead of commercial. Not only is this causing the state to lose out on hundreds of thousands of dollars’ worth of funds for public investments, but it is also part of the story as to why the housing market is smaller for potential residents. 

Recently, Joe Minicozzi presented to the North Carolina Ad Hoc Committee on the data he and Urban3 have collected on property tax inequities throughout the state.

In Joe’s presentation to the committee, he brought up the importance of, and the issue of housing shortages within, North Carolina. Since 2016, available housing units have drastically plummeted, which is not ideal considering that in 2016, the housing market already lacked the inventory needed for a healthy market, according to realtor data. The image below demonstrates just how drastically affordable housing availability has plummeted over the years. In 2021, there were only 47 units available below $375,000 in Buncombe County as a whole, and seven units below $375,000 in Asheville. 

This is not giving a lot of options for a wide group of people. Take a look at the graph below and you’ll see a comparison of home affordability and income. The orange bar shows there isn’t a wide range of home options available on either extreme end of the spectrum, but a decent amount in the middle. This situation places pressure on the lower income group because the higher income group can always purchase downward, effectively pushing the lower income group completely off the board. 

If we take a look at the available housing market in Buncombe County with short term rentals (specifically, Airbnbs with out-of-state ownership) added in the mix, we see that there’s an even more drastic disconnect between available housing and people.

North Carolina is a great place to purchase a single-family home and fashion it into an Airbnb. Tourism is flourishing and it’s an interesting place to be with the largest stateside mansion, beautiful parks, and seemingly endless tourist entertainment. While this tourism push can be good for the economy, it’s also made it difficult for homeowners to compete with prices spiking from real estate investors gobbling up the market before the local public can get to it. When there is not enough housing available and higher income residents are forced to buy downward, we are pricing out lower income people who could have affordable housing. 

With Airbnbs being taxed as residential properties instead of commercial, the state is losing out on potential public funds and it’s encouraging more investors to stake their claim in neighborhoods. As investors funnel in, housing prices spike and potential homeowners are finding themselves outbid by cash offers. Throughout Minicozzi’s presentation, he questions if we are treating potential investors and potential homeowners fairly. Is the way we tax properties benefitting one group of people more than the other? 

We can’t place the full blame for housing shortages on outside investors; they have their place in benefiting the community and bringing tourists in to circle cash. But, we can look at the number of hurdles each party needs to overcome to reach their purchasing goal and try to determine if the length of the race is equitable. It’s no secret that wealthier people tend to get more tax breaks, and when it comes to property taxes, the result is the property tax burden being shifted from owners of larger and more expensive properties to people who own smaller and less expensive homes.

Limitations in the building industry are another recent cause of housing shortages. A lack of basic building supplies is a theme spread across the United States since the supply chain was disrupted at the start of the COVID-19 pandemic. Builders report waiting months for simple items, like doors. Lumber prices rose to jaw-dropping costs, which are just now possibly sliding back down to more affordable rates. 

In short, there are a multitude of factors to consider when it comes to housing shortages, and the solutions to this massive issue can feel even more daunting. 

Minicozzi referenced Buncombe County Planning director Nate Pennington on the issue of housing shortages in North Carolina: “There is no silver bullet answer. What you need is a silver buckshot approach.” 

Along with reconstructing the property tax system to identify full-time, short-term rentals and tax them more appropriately according to their true monetary value and status, we’ll need other solutions to really make a difference and develop a balance within the community. Minicozzi suggests another possible solution for bettering housing affordability is to also look at making property tax rebates for homeowners and homeowner exemptions more accessible. 

There’s a lot of possible roads on the route to a more fiscally balanced community, and North Carolina is only one of many states working to make that happen. To govern over a group of people and ensure fairness and equality is distributed amongst all groups is a heavy burden. There are countless angles to consider, multitudes of testimonials to influence decisions, and of course our own framing bias when looking at the functioning of local government and what’s fair.

Currently, our nation is burdened with property tax inequities and citizens throughout the United States have called for a change. In Buncombe county, North Carolina, residents explain through their own experience that something is clearly wrong with the tax assessment system. 

Urban3 has been researching property tax inequities in North Carolina for over a year now. They’ve partnered with the Just Accounting consortium, which Strong Towns is a part of, to further dive into property tax inequities and research the potential health effects this issue may cause. To learn more about this effort, check out the website and sign up for our email list. 

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