Take a look at the two homes below and see if you can guess which of them is worth more, in the eyes of the county property assessor:
Did you guess the one in residential neighborhood with the lush plantings, a stellar example of Seattle’s celebrated single family homes?
Nope. They are valued the same: $1,000. They are both considered teardowns, ripe for redevelopment and in the case of the one that is clearly in a low-density neighborhood, for gentrification.
See for yourself: the first two screen shots are for the first home (located in Wallingford). Note how the land and home assessment values grew each year — until last year, when all the value from the house was posted against the land. Since the taxes are assessed against the land and the house, the house is now considered worthless. The assessor’s office is making my argument for me, that the value is in the land.
Note that the parcels are different sizes: the smaller one has a higher assessed value, based on the land values around it, the multi-story buildings/investments other people made.
There is a similar property next to it, with an almost identical assessed value, same owner, representing a combined $2 million in assessed land value in a very desirable location. Both lots could be cleared and developed into a multi-story building that houses far more than fit in those two century old houses, paying more taxes.
We know the game here:
Those lots might as well be vacant, after all. So the owner is simply waiting for their price, for the pressure to build to push up the price for those parcels, knowing that the buyer will need to buy them both. The Hardwicks store, just a few blocks away, was valued at $3M and sold for $17.5M: who knows what price those parcels will command?
In a conference call with the county assessor’s staff a year or so ago, they all used the phrase “highest and best use” but I am not seeing it here or in many other places. We have already established that the land is what has value, ie, needs to be taxed, and King County breaks out the land and improvements separately. It’s not clear why land isn’t assessed at a uniform rate per square foot for residential land and another for commercial (with variables for density or type of usage). The land under the residential home above is assessed at $186/square foot where 20 years ago it was taxed at $62/square foot (we’re ignoring the house, which the assessor was willing to see as more than a teardown). That’s three times the assessed value for land put to the same use with the same zoning. It’s residential land: it’s not expected to be put to any remunerative purpose. In fact, zoning forbids that. We know the value has increased due to scarcity, to high demand for land, as Seattle’s population has increased over the past 20 years.
So what is to be done? Well, the assessor has made a good start by breaking out assessments on land and improvements. What needs to be done now is to treat commercial land separately from residential land, not to let homeowners off the hook but to recoup the value from commercial landowners who pay the same percentage as homeowners. After all, the commercial landowners are among the chief beneficiaries of the scarcity of land as people have moved here. Amazon and the many other businesses here have made a lot of money, but Amazon didn’t exist 30 years ago: the land it sits on did.
But back to the residential homeowner who has seen her taxes rise — triple — in 20 years and now finds her home deemed a teardown: this is gentrification, though not what most people think of when they consider that term. The taxes are being used as a lever to force people out of homes they don’t want to sell, and the proceeds from the land sale — the land is all anyone wants — likely won’t allow them to buy into the local market. So they are forced to leave not just their home but all their local connections, neighbors, shops, restaurants, doctors, all of the things they invested in that made that land valuable.
I don’t care so much for the speculator with his two houses in the U District: we know the game he is playing. They will recoup the $24,000/year in property taxes when those two parcels sell for millions. Some local developer would rather pay a a ground rent, like was offered for the Mercer megablock…$1,000,000 acre for 6,000 square feet would be about $140,000/year. That’s a lot more than those parcels are remitting now. Put a 2% annual increase on that and the annualized rent over the 99 year lease is more than $400,000 a year. Add up all those rents and a city can borrow against that revenue stream to build what it needs to keep those rents coming in.
And if commercial land is assessed for its highest and best use, that gives residential taxpayers a break, as well as forcing speculators to put their land to work. There are idled or disused parcels all over Seattle, including right across from City Hall, that could be making a lot of money for the real investors — the people who live and work here. And to be fair, that $1M/year land rent was what was offered, not what was assessed.
There is no affordable housing without affordable land and taxing the value, rather letting it be pocketed by speculators, is the key to making land affordable. A developer would rather take on those two parcels for a $140,000 annual rent than pay (debt finance) a $10M or 20M purchase. Stop taxing buildings and improvements/punishing development and tax land.