Totally false. Changing the tax rate will definitely change the rent. A property tax increase will increase the floor that tenants (edit: meant landlords) would be willing to rent their places out across the entire city as they look to protect their profit margins. You don't think that a landlord will see a property tax increase and think "oh well, I guess I'm going to make less money from now on". Rent is definitely not a simple supply/demand situation as there are many hands in on the equation (taxes, rent control, zoning).
Nope, you're wrong. Your argument rests on the idea that landlords (I assume you meant landlords where you said "tenants") have the ability to raise prices. If they did, they would have already raised them. Landlords who are not subject to rent controls charge whatever the market will bear, and no less. Therefore property tax has no bearing on rent.
I'm not being silly and it's easy to see why. The differences between taxation of otherwise-identical buildings are already much more than 50%, because of Proposition 13. There are similar buildings on my block where the tax bills differ by more than an order of magnitude. Does this have any effect on the rents? It does not. The house paying $2000/year commands as high a rent as does the house paying $20000/year.
Lets take this even further, then, to demonstrate a point.
Lets say that property taxes were 1 million dollars a year, per apartment.
What do you think would happen? What I think would happen is that property owners would abandon their property/destroy it/remove it from the market, because they don't want to pay that 1 million dollars a year.
This would effect support of housing, meaning that price would go up.
Yes, rents are effected by supply and demand. And property taxes can have an effect on supply. This is clear, in our extreme example of 1 million dollars a year, per apartment.
OK, but in this context how does reductio ad absurdum help us? Actual property taxes aren't flat fees, they are rates on the value, and the value is derived from the gross rent the property commands. You are talking about a tax that would be much greater than 100%, while actual San Francisco taxes are 1%. We can talk about the small-signal response of this system, how it behaves if you double or halve the tax, without having to think about whether our model holds at the extremes. It doesn't matter if the model can't predict what happens if the tax rate goes to infinity.
On the other hand we do know what happens if the tax rate goes to zero, because there are many rental properties in San Francisco which are essentially untaxed. These properties have the same rents as any other, following the market price up and down. We can say with good empirical basis that halving and doubling the property tax rate has no effect on rents.
> OK, but in this context how does reductio ad absurdum help us?
It helps us at least establish that property taxes effect supply.
If there is an additional cost for holding a certain supply, then this will discourage people from holding it.
For other examples, you can think about how it would discourage people from building new supply because that supply is less valuable, due to the additional costs of holding it.
> These properties have the same rents as any other
It is not about the effect on existing properties. Instead, this is about the effect that at tax has on the supply of housing.
Higher costs and higher taxes disincentives the ownership of, or creation of new supply.
> We can say with good empirical basis that halving and doubling the property tax rate has no effect on rents.
No. Because you are ignoring the effect that costs have on supply of housing. The higher that costs are, for both building housing, holding housing, or any other cost at all, means that owning that property is less valuable, and it means that less future housing is produced, due to higher costs.
I'm not ignoring it. It seems like you must be making this argument from some far-away place. There is no developer today who is waiting on the sidelines for lower property taxes. Property tax rate has no bearing whatsoever on supply of housing. What does control the supply of housing is that it is forbidden by statute to build housing in 90% of San Francisco and a large portion of the surrounding area, too. You could repeal the entire property tax regime and it would have no effect on rents.
Ah, ok, I got caught too much into the hypotheticals. If you are going to say that additional costs to holding housing, do not effect supply in San Francisco, because the bottleneck is actually a supply cap, which makes it illegal to build more, then I can agree with that.
But, in general, if there are not laws that put a maximum on housing supply in the area, THEN property taxes would effect supply, as the bottleneck to new housing is costs and profitability, and not laws.
You've used the seniority-based discontinuity in the tax basis among SF rental properties (ratcheted by Prop 13) to argue that property taxes don't matter for rental prices in general. Just because some landlords end up being privileged and pay negligible property tax, doesn't mean that the tax doesn't affect the system as a whole. New landlords who want to rent out their properties still factor it into their calculus and compare that against investing their money elsewhere, which affects supply.
Its not actually absurd. It happened in the 70s/80s in NYC where rent controls and inflation meant that property taxes were higher than rent. Houses sold for next to nothing and were often abandoned.
It seems to me that you're both talking in absolutes, where what's needed is a bit of context.
The situation jeffbee is talking about sounds like one where property taxes constitute a small enough percentage of annual rental revenue that, even in cases where they're very high, they're not high enough to create a genuine squeeze on the landlord. Thus, demand sets the price.
In a hypothetical situation where property taxes rose high enough that the landlord was no longer making a profit, then yes, they would probably have to raise their rents. In such a situation, it is likely, but not certain, that property taxes would be rising by similar amounts for that landlord's competitors, so rents would simply go up (even more) across the board. If they didn't, and that landlord was just very unlucky, then they'd end up having to make some other kind of structural change to their real estate business or exit the market.
