Recently there has been some debate regarding the plans to build the Obama Presidential Center in the south side of Chicago. Among the dissenters are those who own property in the vicinity and are worried that their properties will suddenly increase in value and consequently they won't be able to afford their property tax increases. This seems like a good problem to have, but [when I put myself in their shoes and look at the world through their eyes] I can understand if money is tight, being forced to sell your home could be heartbreaking, even if it is profitable. So I wonder what options they have when faced with this issue, preferably those that won't increase the homeowner's monthly payment?

Surely this isn't a localized problem and it seems like some banks (or even the municipality) could benefit from offering creative financing solutions in these scenarios, though I've never heard of them.

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    Someone who can't afford the tax can't afford to finance the tax either.
    – Beanluc
    May 18 '18 at 19:12
  • @Beanluc - They could potentially borrow against the equity which will be much greater than the tax amount due.
    – TTT
    May 18 '18 at 19:16
  • I guess you want a reverse mortgage, then, since clearly you imagine that the bank will keep that equity at the end of the day rather than having provided a loan which would ever actually be paid back. That's a creative finance solution which exists, it's just not marketed as a tax solution.
    – Beanluc
    May 18 '18 at 19:20
  • Don't forget the more distant taxpayers, who will see their share of the municipal tax burden decrease...
    – DJohnM
    May 18 '18 at 19:36
  • @Beanluc - I'm thinking more along the lines of a HELOC. (Refi with cash-out works too but then you're paying interest long before you need it.) The loan could simply be paid back at sale.
    – TTT
    May 18 '18 at 19:40

This is a well known issue, and worst case those people end up being forced out of their homes, either by selling or by foreclosure.

Note though that many states have made laws that protect them, called Save-our-Homes or similar. Those laws limit the amount the property tax can go up per year, no matter how the assessed value increases.

Example: you have a house in FL, assessed value = 300 k$, tax 3 k$. Next year, the house gets assessed 500 k$, tax would come to 5 k$, but it only becomes 3k+3% = 3090 $. I don't know which states have that, but I think many. FL has it for sure, and the annual limit is 3%.

  • This is good information, however, it doesn't really answer the question of what the homeowner can do about it, except hope their government does or has already done something about it. I suppose it could be that there isn't anything they can do...
    – TTT
    May 22 '18 at 4:41

This is an example of gentrification. Maybe not the classic example, but it is an example.

If home values have been stable, and families incomes have been stable, and the local government hasn't raised property tax rates, then people budget for a stable situation regarding their tax bills.

The rapid rise in property values due to this change will hurt property owners. We saw this in the early 2000`s when in some locations property values doubled in a few years. Long time homeowners said they would not be able to afford their current home if they were trying to move into the neighborhood.

Many times a local government will trigger a rapid rise in taxes without a rise in property values, when they implement a special taxing district to pay for a localized improvement. Those special taxes are harder on families becasue they have to pay more each year, under the hope that in the future they will see a rise in property values.

The local government has several options, these may take changes to the local tax code, but it may be possible becasue it is likely that zoning changes will be needed to build such a structure.

  • They could create a special tax district that slows the increase to no more than the average for the city as a whole. They could defer additional value until the property is sold.
  • They could put a several year delay until implementing the change, this would give homeowners time to adjust. They should still tell homeowners how much it would have been without the delay so they can be ready for the jump.

Loans generally wouldn't work, because the homeowner would still be paying for the tax increase. Home equity loans wouldn't be easy becasue the homeowner might not have enough equity. In some jurisdictions the value of the property for taxing purposes is unrelated to the property value on the resale market, so the mortgage owner would have to get a new appraisal. Families without a loan would have to apply for a loan.

Interest in those home equity loans wouldn't be tax deductible under the new tax law becasue the money would not be used to buying the home, or to improve the home.

  • I'm not following your 2nd to last paragraph. In the extreme example you gave of property values doubling in a few years, surely they would have plenty of equity, and I don't think it matters that they "would still be paying for the tax increase", in fact I think that's fair if their property value doubled. In those cases I feel like home equity loans would be perfect just to cover the taxes, with plenty of profit left over. I agree it wouldn't work for everyone though, but certainly it would work for some?
    – TTT
    May 22 '18 at 4:47

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