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Newell: Fear grips NOLA housing market as new property assessments come into focus

Skyrocketing home values put residents on edge; some face 50% tax increase

Newell Normand
August 01, 2019 - 5:02 pm

Who will be able to own a home, rent or operate a business in Orleans Parish?  Property assessments are being done and homeowners are getting the shock of their lives.  Higher assessments mean higher taxes.  Higher taxes mean less affordability for many. To understand more about what the consequences are for the city and the region, Newell invited real estate analyst Arthur Sterbcow onto the show Thursday morning.

"I'm looking at one particular case," Newell said, "Of a lady who buys her house in 2008 for $135,000 - in her first assessment year, the value of that house should be fairly close to what she paid for it... and last year, in 2018 her assessment was $167,000. It seems to me the problem was that over that 9-year period of time, they didn't really appropriately assess the value of her home, because now, in 2019, her house is now assessed at $416,000!"

That's a big jump in a short period of time, and probably a big headache for the homeowner in question. What gives?

"You have to look at each individual situation," Sterbcow replied. "It could be that comparables in her neighborhood were selling around that price, but in the succeeding years, maybe some investors came in and put $200,00-$400,000 into the neighbors properties, raising those values up significantly - and she did not. So their higher values are adversely affecting her, and that's why an appraiser would be able to drill down and get the assessor some validation as to why it should be changed back, or at least mitigated from where it was increased to."

Newell later asked a question that at first blush seems like it has an obvious answer, but as we discover the more we dig into this topic, nothing is as simple as we would like. Why do we treat residential rental property in the same silo as residential property?

"Because it's the law!" Sterbcow replied, but Newell pressed on.

"It seems that may be what's tilting the wheel for owner-occupied residents, because they don't make any money off that property, but others do and there's more value there because you have a more immediate return on investment... you're developing equity and you're getting rent, and in some cases with low interest rates, you're getting rent that far exceeds what the mortgage note is!"

"You can make that case, and you can also make the case that rental properties in general - and this is a real broad generalization - a homeowner is going to take better care of the property than a landlord or tenant might. They're going to be more likely to replace the carpet, upgrade the property, when a tenant might not... so for every thing on one hand, there's an offset on the other - I'm not sure there is a perfect solution for property tax assessments, they're always going to be imperfect, and always impacted by human error."

Broad generalizations were a common theme with this issue, as many residents complain that they're being collectivized in a way that's unfair, instead of having their home assessed on an individual basis, residents who live in their homes are being assessed in the same way as properties where the homeowner lives off site and rents the house out to short term tenants.
 
"With today's technology, with the ability for us to zoom in on a house and do so many different things, shouldn't we be able to quantify almost on a parcel-by-parcel basis?" Newell asked. "Owner-occupieds are suffering the valuation of investment property - they're paying investment property tax rates, not really owner-occupied, because we all know if it's creating an income stream, it has more value? A business income value?

Sterbcow again pointed to the way the law is currently written and admitted it might be less effective in a 21st century market. "The law is, it's considered residential if people are living in it. That would require a change in the law. Philosophically, you can certainly make the case that we should look at investment property different than owner-occupied, and that's what they're trying to do with AirBnB and things like that. Those are deep philosophical questions, and for every two people you find that will agree with you, you'll find two people that disagree with you."

"That needs to be corrected, one way or the other," Newell said. "Income-deriving properties need to be taxed at a different rate, and their valuation should not fall in the same pool with owner-occupied."

  Listen to the full interview and Newell's conversation with WWL listeners below.

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