Review Case 10-2:
Explain how you would quantify the amount or percentage of property tax revenue that comes from owners of Habitat for Humanity houses in a particular municipality.
Provide two (2) arguments in favor of giving a property tax break to owners of Habitat for Humanity houses.
Provide two (2) arguments opposing giving a property tax break to owners of Habitat for Humanity houses.
Determine the best way to resolve the problem described in the case.
The Property Tax versus Habitat for Humanity
The real property tax is based on property values, not the income of holders of the real estate. As the story reported here demonstrates, this situation can create some difficult issues when real values are increasing rapidly.
Consider These Questions
1. Analyze the situation described here. Is this a property tax problem that a government needs to deal with? If so, what options are available to state or local government?
2. What do you think about having special assessment adjustments for valuation of Habitat homes?
3. Are there options that Habitat for Humanity should consider? What do you recommend?
Burned by the Boom in N.Va. Real Estate Soaring Property Taxes Overwhelm Habitat for Humanity Homeowners
By Annie Gowen
Kesha James still remembers walking through the freshly painted rooms of her Habitat for Humanity house for the first time, making plans for the leather couch she would buy, and piano and the canopied bed for her three little girls.
Today, the couch is still a dream. The living room is in ruins because of a plumbing leak she can't afford to fix. She took a second job and works seven days a week but is still afraid she might lose her house.
Her modest mortgage isn't the problem; it's rising property taxes that keep her up nights. Her little house in Alexandria has more than doubled in value since it was built in 1999 and is now worth a half-million dollars, forcing her monthly house payment, which includes real estate taxes, up from $515 to $954 in the past 18 months - chiefly because of higher taxes.
"It's not fair. It doesn't make any sense," said James, 29, sitting at her cheerful kitchen table, her youngest daughter curled up in her arms. "Alexandria is my home... I don't want to leave."
Asked when her last day off was, she can't remember.
Rising property values across the region have put the squeeze on taxpayers, but the bite has been especially acute for owners of Habitat for Humanity homes in Northern Virginia. In some areas, their homes have doubled and tripled in value in the past three years.
At least a dozen of the 47 Habitat homeowners in Northern Virginia pay more in property taxes and insurance than they do to pay off their mortgages, according to Karen Cleveland, executive director of the Northern Virginia arm of the housing nonprofit group. It is part of an international group that builds homes with volunteers and sells them to low-income buyers.
"The rising property taxes have truly made it almost impossible for them to stay in their homes," Cleveland said.
"We're saying, Help us to make it appropriate so our homeowners are paying what is fair for them."
Soaring home values are also a growing concern for the owners of 19 Montgomery County Habitat for Humanity homes, most of them in Silver Spring and Rockville, program officials said. Tax caps and a five-year abatement program for new Habitat owners in the District have kept costs in the city and the Maryland suburbs from rising as steeply as they have in Virginia.
"We're expecting them to have problems," said Carol Casperson, executive director of D.C. Habitat for Humanity, which has renovated 150 homes and low-income co-ops across the city. She noted that a Habitat house that sold on 54th Street NE for $99,000 in the fall was recently assessed at $186,000.
In recent months, Habitat for Humanity of Northern Virginia has launched a campaign to persuade localities to provide tax relief for their homeowners. It is arguing that the Habitat homes shouldn't be assessed at market rates because deed restrictions prevent their owners from selling the homes for profit or getting home equity loans until the 20-year mortgages are paid. If Habitat homeowners sell their homes before 20 years are up, they must sell them back to Habitat for the amount they cost--$80,000 to $120,000 in most cases, Cleveland said, which the restricted valve is.
The Campaign has had some success in Fairfax County, where assessors granted several appeals last year. They resulted in a reduction of up to 50 percent in some cases, Cleveland said.
In recent days, Alexandria city employees have begun examining restrictions on the deeds of eight Habitat homes to see whether similar tax relief can be provided, said Cindy Smith-Page, director of the city's real estate assessment office.
But talk with real estate assessors have not yet begun in Arlington County, where owners of eight properties have had values triple in the past three years.
"To be honest with you, I'm a little concerned," said Ronnie Watson, 42, who was able to buy a cozy Arlington duplex in 2000 after he and his teenage son spent months in a homeless shelter and a rat-infested apartment. "We are living paycheck to paycheck."
He has to work overtime as a meter reader to pay their basic bills, he said. Anything extra - such as his son's yearbook and cap and gown for his coming graduation from Washington-Lee High School - is a stretch. Watson is praying that his house payment, already up from $363 to $442 in recent months, won't top $500.
"That's a whole lot to me," he said.
Kesha James had never known a home until she and her new husband, Ian Roger James, 35, moved into their townhouse in Old Town in 1999. They had poured more than 500 hours or "sweat equity" into the project, helping build it, working alongside Habitat volunteers putting up siding and painting. They were able to buy the house - then appraised at $190,000 - with a zero-interest mortgage, for $90,000. James, a District native, had grown up shuttled among relatives by her widowed mother, who struggled with a gambling addiction.
She ended up in an Alexandria homeless shelter in 1997 with her first child, Kaya, now 9, after fleeing an abusive relationship. A social worker there was impressed by James's flinty determination to keep taking classes at Strayer University even while living at the shelter. She urged James to apply for the Habitat house.
By then she was with Roger James and the couple had two more children, so having a house seemed like a miracle. Once they were settled, she even bought the piano she had dreamed of, a $300 used upright.
Things were happy for a long time, but 18 months ago the monthly payments started rising fast, as home values in Northern Virginia exploded, doubling since 2000.
There was less and less money for such things as Girl Scouts and dance club for her daughters, things she desperately wants them to have. She was working full time for a homeless advocacy group in Arlington, making $28,000 a year. She added Saturday and Sunday overnight overnight shifts as a monitor at a homeless shelter to bring in extra money. School fell by the wayside.
Her husband started saying maybe the house wasn't such a good ideal. One day last fall, they had another fight about money.
"I said, 'Roger, why don't you just leave." James recalled. "I'd said that before and nothing had happened, but this time he said, "I think I'm going to get my own place.' And then I was thinking, 'What have I done?"
He decamped to Pennsylvania near Hagerstown, leaving James to struggle with her mortgage payments and the girls, although he visits frequently. She pays $954 a month in house payment, $493 of that for taxes and insurance. If the city can't provide a tax break, her payment is expected to increase another 30 percent in July.
James said her husband wants the family to reunite up north, but James wants to stay in her house.
"That's my house I helped build," she said. "I put my heart and soul into it, so I'm going to fight."
The problem at hand is that Habitat for Humanity provides affordable houses to low income people that is then taxed by the government in such a way as to make it difficult for these people to afford their houses. Habitat for Humanity makes the houses through the efforts of volunteers and the owners of the houses themselves. Once they receive the houses, owners cannot sell it at market price until they finish paying their 20 year mortgages. Until then, the houses are essentially off the real market system, yet are being taxed based on a market value that cannot be realized.
Governments have a few options. They can continue to charge taxes based on market valuation, potentially forcing house owners to return their houses to Habitat for Humanity, which would then be responsible for those taxes until a new owner can be found who can afford to pay the property taxes. This, however, would put a lot of financial stress on a very successful and socially ...
The solution discusses property tax and habitat for humanity.