Housing Affordability Threshold……just in case you are still not clear on this

We have been asked why, when we are discussing the ever increasing property taxes, we seem to be focusing on those living on fixed incomes rather that the general population.  The answer is because seniors on fixed incomes are going to the ones that feel the immediate financial impact on their ability to stay in their homes.  However, it is valid that low to middle income wage earners are also going to eventually feel the financial impact unless their TOTAL annual income increases to offset the property tax increase and still meet the “housing affordability threshold.”

Let’s go back to the basics as determined by the Center for Community Solutions:

  • When is your home unaffordable?
  • If your mortgage + utilities + property taxes (or your rent + utilities) are > 30% of your annual income Example: Mortgage:$1,000 + Utilities: $500 + Property Taxes: $500   = $2,000 Total Monthly Expenses
  •               Your annual income needs to be $80,000/ year !
                  ($2,000 / 30% = $6,666 per month x 12)

Since school levies generally account for more than 60% of property taxes [68% in Lake County], let’s take a look at a typical school district’s income versus their expenditures.  The first chart will show how income from tax levies are needed every few years to account for the ever increasing public school expenditures.  The schools annual expenses can never go down, they will always increase. This chart was re-created from the chart originally created by Robert G. Stabile, Ph.D. in his book titled “Ohio School Finance Blue Book”.

You will see that as expenditures constantly increase the school district has to go back to the voters ever 3-5 years to ask for more money.  Whether the increases are due to inflation, new buildings or increased operating costs, it does not matter to those on fixed incomes.

Now let take a look at the same chart, but with two lines added: (1) Total annual income, and (2) HAT % at 30% of annual income.

What this chart illustrates is that if the taxpayer’s annual income does not increase then eventually property taxes needed to fund the schools, and the other political sub-divisions, will cross the taxpayer’s housing affordability threshold.  The taxpayer will then experience personal financial difficulties and will not have enough disposal income to meet their personal “needs and wants”.

So perhaps you are wondering how much additional annual income does a taxpayer need to cover a proposed increase in property taxes?  It is really quite easy to determine the amount.

Let’s assume that the “non-profit” doing work for the “betterment of mankind” wants an annual tax increase that will cost you only $100 per year in taxes.  No doubt they will push the proposed levy with marketing hype that it will only cost you $8.33 per month, or even $.27 a day – now who would not want to spend $.27 a day helping mankind (or womankind, if we must be politically correct).

Well, the deception is that although it may cost you $100 “out of pocket”, you must earn an additional $333.00 in annual income ($100.00 / .3) to avoid the tax levy causing you to get closer to the 30% housing affordability threshold.  If a school district wants an extra $500 a year for a new school, it really cost the taxpayer $1,666.66 a year ($500 / .3)

Have you ever heard a politician, “non-profit” executive, or bureaucrat tell you those facts? Neither have I.

Hopefully, you can see why we are raising the alarm for those living on fixed incomes.  They are going to be financially devastated if something is not done to change the funding mechanism for schools.  It is simply not sustainable.

Well, what about those that are working, and not on fixed incomes?  They may not currently be in a financial bind, but unless their income keeps increasing, they too will feel financial impact of burdensome real estate taxes.  We have done some research on the housing affordability threshold for renters and homeowners throughout the State of Ohio.  We have found that overall renters are at 29%  and homeowners are at 21%.  Here is a list by county.

The numbers indicate that renters are almost at their HAT %.  Homeowners will continue to shoulder the burden for schools, “non-profits”, expanding government bureaucracy, and even local Community colleges that continue to fleece the unsuspecting taxpayers.

Lobbyists for Citizens cannot promise to change this unsustainable path, but we can promise to try!





Categories: Education


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