You Can’t Have Gentrification Without a Gentry Class: The SALT Edition

Yes, not enough housing can bid up prices. But as we’ve been saying for years, you can’t have gentrification without a gentry class. In other words, housing prices, in part, are expensive because the gentry class is able to afford those prices (while housing becomes increasingly unaffordable even for the upper-middle class).

Thanks to Il Trumpe, we have a small natural experiment that supports this idea. In his tax bill, only the first $10,000 of state and local taxes (‘SALT’) are deductible. While Republicans did this largely to fuck over states that actually spend money to improve the lives of their citizens, it also meant less money in the pockets of the well-to-do. You’ll never guess what happened next (boldface mine):

In Westchester County, where a typical property tax bill for a single family home is more than $17,000, the average sales price declined 7.6% between the first quarter of 2018 and the same quarter this year. Sales prices for luxury homes (average price $2 million) plummeted 22% during the same period, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.

Even though it’s not discussed that much, a more progressive tax code–with more brackets that start increasing at lower amounts*–would lower housing prices.

*This is why Krugman’s insistence that the bulk of economic problems can be laid at the feet of the 0.1 percent or higher rings false. They do cause a lot of damage, but so do the 0.1-10% percentiles.

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1 Response to You Can’t Have Gentrification Without a Gentry Class: The SALT Edition

  1. coloncancercommunity says:

    I live in Westchester County and it actually is more complex than that. Housing prices fell in certain communities. The tax bite varies dramatically between municipalities. Interestingly, this has allowed some of the less tony areas of Westchester – that were seemingly left behind in the big “recovery” a bit of time in the sun. These areas had lower taxes. But with the SALT deductions intact, the very well-heeled turned their noses up at these more diverse towns and cities. Why settle for a home in school district rated merely in the top 15% nationwide? They didn’t have to because the SALT deductions made it possible for them to afford homes with a $50,000+/year tax bite. This gave them access to school districts stratospheric SAT scores (read all white with some token Asians for diversity) that rate in the top 1-5%.

    All of a sudden, some really nice areas that the gentry previously considered low-brow, started to look a whole lot nicer. Prices are still moving higher in these areas. This is giving sellers from the boomer generation a badly needed break. Unfortunately, developers are only building a handful of ludicrously priced condos/townhouses ($1.3 million +) that can’t make a dent in the need for decent downsizing alternatives.

    The rest of this so-called “building boom” is totally dedicated very poorly built luxury rentals that have extortionary price tags.

    People aching to get rid of their large home felt trapped if they wanted to age in place. this change is helping them. However, this is not helping younger people get a foothold in the housing market.

    Related issue:
    Last night I attended a round-table discussion group about the future of our city. Lately, there has been a flood of massive building projects approved that have exemptions for every zoning ordinance imaginable. I’m talking 20 story structures being crammed into an area zoned for 3 stories maximum.
    One is to located on top of a toxic waste dump complete with a methane gas leak that the builder claims is “not serious”. No, I’m not kidding.

    Some of this builing would be fine if it was affordable housing or something young people could BUY INTO or seniors could retire into. But these are ALL luxury rentals. Nothing affordable beyond the 10% set-aside which the developer can have reduced to 6% if he pays off the city. The quality of the building is abysmal. I’m guessing they are put together with some combination of cardboard, scotch tape and some Elmer’s glue for extra stability. Seriously, Soviet block housing would probably trounce this junk in terms of quality. Yet the developers are renting STUDIOS for over roughly $2k/month. A downsizing boomer couple might get lucky enough to snag a 2-BR 1000sf unit with a view of a brick wall for $3500/month.

    A member of the Common Council was joining in the discussion. (You got to give him points for courage). Anyway, several people started in on the low quality and high cost and the fact that there was nothing to BUY in any of the new inventory. His response was simple: “But that’s all the developers WANT to build.” Hello? WHO CARES WHAT THEY WANT?

    Housing should respond to NEED not just profit. Since when did developers dictate the terms of what they would build while getting massive giveaways in terms of zoning and millions in tax abatements. These abatements saddle current homeowners with the cost of infrastructure upgrades these complexes require. Why are homeowners subsidizing luxury rentals they themselves could never afford? Financialization of housing is what is causing all of this. You can add density to the stratosphere until the cows come home, but if all they build is low-quality luxury housing, it will bring us no closer to solving the housing crisis.

    What happened to the ability of our representatives to NEGOTIATE? The need to grow a set and get familiar with the word “NO!”. No, you can’t build a 20 story structure in an area zoned for 3 stories and reduce the required affordable set-aside to 6%. No, we won’t give $50 million in tax abatements to build 30 stories in an area zoned for 6 stories. No, you can’t just pay us off for your green space and set-back requirements. We actually NEED to have more green space than a token bush or twig. This isn’t rocket science.

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