Five years ago, when a real estate agent advised my wife and me to make an offer on a house we had seen only once − at night − and were unsure about, I thought she was being ridiculous. Today, I concede that she was being pragmatic because buyers significantly outnumbered sellers.
We bought another home before it was listed, happening to spot the “Coming Soon” sign out front. That was my preview of the housing shortage. Then COVID-19 supercharged the national housing crisis.
You may know the rule of thumb not to spend more than 30% of your income on housing. Redfin calculated that only 15.5% of homes bought last year would have a mortgage costing less than 30% of local median income, a record well below the pre-pandemic norm.
A new report from Harvard’s Joint Center for Housing Studies found that in 2022, a record half of U.S. renters were “cost burdened,” spending more than 30% of their income on rent and utilities. About 27% of renter households spent more than half of their income on housing.
The root cause of this financial hardship is a shortage of homes, although some housing advocates question or deny that reality. But the housing shortage is a literal shortage. We can see it from various pieces of evidence.
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Housing price index is at near record high
America built far fewer homes in recent years. U.S. private home construction crashed before the 2008 mortgage crisis (measured in total units). Only in late 2021 did it climb back up to its pre-Great Recession peak.
Homebuilding is rebounding, but we have a lot of catching up to do. The Case-Shiller housing price index sits near an all-time high.
The median age of first-time homebuyers also is near a record high, at 35.
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Investment firms have owned many multifamily buildings for decades. They now are buying a significant number of houses because they expect a continued shortage to boost those properties’ values.
Economists argue about inflation and minimum wage laws, but they overwhelmingly agree we have a housing shortage. “Place the Blame Where It Belongs,” declared a recent Urban Institute report on the shortage. Economists are still figuring out how to measure it, but various estimates place the national shortage of homes in a broad range, from 4 million to 20 million.
Rising rents trigger increase in people without stable housing
It was a moment, not a number, that finally convinced me of the housing shortage. I started an all-volunteer housing advocacy group in 2021 and about a year later was invited to tour a homeless shelter. A staff member explained that rising rents had increased the local population without stable housing, and that the shelter struggled to find available homes to place its clients in.
I have since heard the same thing from staff at other shelters in my state. I have also heard chilling stories about residents of my city living in unsafe, overcrowded conditions.
Low supply lets landlords jack up rents. It prevents people from leaving abusive partners. It forces California college students to sleep in their cars.
The housing shortage is all too real. Only building many more homes will make housing affordable again.
Luca Gattoni-Celli is a Young Voices contributor and the founder of YIMBYs of Northern Virginia. Follow him on X @TheGattoniCelli
Most Michigan homeowners will soon face bigger property tax bills now that a back-to-back 5% hike is set to hit taxable home values in 2024. And yes, you can blame higher inflation for three years of out-of-the ordinary jumps in property taxes.
The latest news is found in a too-often-ignored piece of paper that landed in mailboxes over the past few weeks. The top of that notice states in bold, black letters: “This not a tax bill.”
The tax bill arrives in July. On the notice, though, you’ll see a dollar amount for the change in the taxable value of your home listed on Line 1 of that notice. Your actual property taxes reflect that taxable value as well as the millage rates in your community.
Increases in the taxable value mean you will pay more in property taxes ahead. A box above Line 1 for the taxable value gives an approximate dollar amount for how much your tax bill for 2024 will go up.
How inflation mixes with property taxes in Michigan
Thirty years ago on March 15, 1994, Michigan voters approved a constitutional amendment that included authorizing a 6% sales taxes and limiting how high a taxable value on many homes can go up in a given year.
Under what’s often referred to as Proposal A, the taxable value on a primary residence can go up based on the inflation rate in a year or 5%, whichever is less, for many homes. Again, that limit applies if there were no changes in homeownership or major renovations, such as adding a family room or bedroom to the property.
Make no mistake, some homeowners will see much bigger increases in their taxable value in 2024 under some circumstances. If you bought a home — or took on a big construction project, such as adding a bedroom — your taxable value could go up more than that 5% limit.
Many new home buyers regretfully don’t realize that the limit on the taxable value does not apply to the home the year after it is sold. After a sale, the cap is uncapped the year following an ownership transfer of a property. Then, the taxable value will be the same as the state equalized value, which is half of the property’s cash value. New homeowners often pay far more in property taxes than the person who sold them the home if the former owner lived there for 20 years or 25 years.
When inflation was low, it was pretty easy to ignore the notices that come out months before actual summer property tax bills hit in July. But I’ve been writing about the impact of inflation on property tax bills in Michigan since 2022, once inflation exploded after the COVID-19 pandemic.
Homeowners see sizable hikes three years in a row
The hit to Michigan property tax bills has been staggering in recent years.
The inflation rate adjustment for property taxes in Michigan was 3.3% in 2022 — less than a maximum 5% allowed but the highest increase in more than a decade.
The inflation adjustment reached the 5% cap in 2023 — the biggest increase in 28 years. Then, things could have been far worse if that 5% cap wasn’t in place. Michigan homeowners would have been looking at an inflation-driven 7.9% hike for their 2023 tax bills without that cap.
And now, we’re looking at another 5% hike in 2024.
Based on inflation, the 2024 inflation adjustment could have been slightly worse for Michigan homeowners. The actual change in inflation that would have applied to 2024 tax bills was 5.1%, according to the “2024 Guide to Property Taxes & Proposal A” issued by Oakland County. But again, Michigan law puts a 5% cap in place.
One economist predicted trouble ahead
Patrick Anderson, CEO of the Anderson Economic Group consulting firm in East Lansing, has been warning for the past few years that inflation would lead to a few rounds of significant hikes in taxable values for Michigan homeowners.
A year ago, Anderson told me that he’d expect another big hike — possibly another 5% round — in property taxes in 2024, thanks to persistently stubborn inflation.
“I’ve been annoyingly accurate on this,” Anderson told me by phone Monday.
Anderson, who was part of the effort to adopt Proposal A in the 1990s, said property values could have gone up much faster in recent years without that 5% cap, and many people, particularly retirees, could end up being unable to afford to live in their homes if some protections weren’t in place under Proposal A.
What will happen to the taxable value for most Michigan homes in 2025? Only time — and more inflation data — can give us a clear picture now. We don’t know yet how much inflation will remain under control in the months ahead.
Right now, Anderson said, it’s too early to judge how inflation could impact taxable values in Michigan in 2025. Only a few months of the needed inflation data has been reported. But he expects that it’s possible, if the inflation trend continues, that taxable values on homes could go up less than 5% in 2025.
The next inflation rate multiplier for 2025 will take into account consumer price index data for 12 months from October 2023 through September 2024.
The consumer price index for all urban consumers increased 3.1% over the last 12 months through January, according to data released by the U.S. Bureau of Labor Statistics on Feb. 13.
The consumer price index for February is scheduled to be released March 12.
Anderson said the rapid rise in inflation, driven by the federal government’s stimulus policies to spur spending during the pandemic, turned into a serious concern for many families.
“I sounded the alarm on this inflation way back in early 2021, and said we’ve got a serious inflation problem,” he said. “It’s not transitory.”
The Federal Reserve, which kept interest rates exceptionally low during the pandemic, only began raising interest rates in March 2022 to cool down inflation. Then, the Fed drove the federal funds rate from a pandemic-stimulus low of nearly 0% to a range between 0.25% to 0.5%.
Ultimately, the Fed raised rates 11 times to address inflation from March 2022 through July 2023.
Anderson said the Fed seemed to get the message in 2023 and has been much more disciplined.
While the federal government “continues to spend in an uncontrollable manner,” Anderson said, the huge excess spending by the federal government during the pandemic seems to be in the rearview mirror now. One possible inflationary push, he said, could be the Biden administration’s drive to continue forgiving billions of dollars in federal student loan debt.
Many economists expect that the Fed will hold steady at its upcoming March 19-20 meeting, keeping the benchmark federal funds rate in the 5.25% to 5.5% range. The short-term rate has been in that range since July. The federal funds rate now sits at the highest level in 22 years.
In remarks Monday, Atlanta Fed President Raphael Bostic said the Fed could likely approve two quarter-point rate cuts by the end of this year. Bostic noted that “January inflation readings came in surprisingly high, the latest reminder that the path to price stability is not a straight line.”
Bostic said that business leaders seem ready for a boost in demand once rates start being cut. He stated that the “threat of what I’ll call pent-up exuberance is a new upside risk that I think bears scrutiny in coming months.”
Anderson said the Fed’s interest rate policy seems fairly clear at this point. The Fed wants to make sure that interest rates aren’t cut rapidly and inflation doesn’t soar again. Typically, he said, the Fed doesn’t want to make big moves during an election year to avoid the impression that they’re meddling or choosing sides.
“They are going to be slowly, slowly, slowly, slowly reducing interest rates,” Anderson said.
No one should get their hopes up, he said, that there’s going to be a big cut in rates in 2024.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.
If you’ve got a big budget and you’re scouring the housing market for a bargain, the price of a lavish Hyde Park estate has dipped just below the $20 million mark.
Ledgerock, a modernist masterpiece perched on a jagged ledge at the Hudson River’s edge, is currently listed by Douglas Elliman at $19,995,000, down from its previous price of $25 million.
If that’s above your price range, consider that the home built for real estate mogul Jacob Frydman and his wife Monica was originally listed at a record-high $45 million not quite three years ago.
“We feel that the pricing now is in line with the market,” said Stacey Pinkas, one of the listing agents. “I think that pre-COVID they had it at a certain price point and now when we took on the listing it’s more in line with the market trends. And they are motivated to let go of the property.”
The Frydmans purchased the Dutchess County property in 2005, demolished three existing buildings and hired New Orleans-based architect Lee Ledbetter to design Ledgerock.
The couple envisioned a “dream home” where they could entertain and showcase an art collection containing dozens of sculptures, including a 3,000-pound lava-stone carving they brought back from Indonesia.
The five-year project culminated in a limestone and glass, five-bedroom residence with windows offering 360-degree views, 18- to 28-foot ceilings, and wood, marble and stone sourced from Europe, Africa and South America.
The 14,800-square-foot home features an elevator, two-story library, billiards room, gym, theater and indoor pool.
The 10.7-acre estate boasts a two-bedroom guesthouse, sculpture garden, 18-car garage with a car wash, outdoor saltwater pool, beach, helipad, fire pit, spa, outdoor kitchen and 5,000 square feet of travertine terraces.
Along with its luxurious amenities, Ledgerock comes with an annual estimated real estate tax bill of $108,392, according to the listing.
“It’s such a stunning property and special place, to see it not being used as often as one would hope,” Pinkas said.
Ledgerock sits directly on the Hudson’s shore, which would not be permitted under current zoning and setback laws requiring new homes to be constructed at least 100 feet away from the riverbank.
It’s got its own private dock, so you can arrive by boat or seaplane. But rest assured: The gated estate is accessible by car.
Ledgerock has a cantilevered design to protect it from flooding by diverting water underneath the house, Pinkas said.
The Frydmans would be open to selling Ledgerock’s furnishings, many of which were custom designed and built, she added.
“They own multiple properties,” Pinkas said of the Frydmans. “They are a mature couple and they are just not spending as much time there as they were previously.”
Robert Brum is a freelance journalist who writes about the Hudson Valley. Contact him and read his work at robertbrum.com.