I am coming up on my three month anniversary of living in Texas, so I thought I would celebrate the milestone with a rant. I have said numerous times that home ownership is highly overrated and that purchasing a house is not an investment. It is for people who confuse nominal gains with real gains, disregard the high transaction costs associated with buying and selling a home, and ignore maintenance and remodeling or interest paid in their ROI calculations. It sounds great to say, “I bought a house in 1977 for $60k and sold in 1996 for $170k” WIndfall! But not really… I’ve explained this ad nauseum.
And yet, I found myself driving to a signing as I prepared to close on my newly purchased home in Bee Cave, Texas. Part of the reason I agreed to move to Texas in the first place is that somehow, someone else was willing to pay all the transaction costs associated with buying and selling our old house, moving expenses, and that Texas was cheaper than Washington. I didn’t realize just how much cheaper. We wound up buying a bigger, nicer house in a great school district for ⅓ of the price that our house in Redmond sold for. Instead of dread at the prospect of a thirty year mortgage I was borderline happy. I don’t want to move my kids again and I can see myself living here for a long time. With prices this low, buying actually makes sense.
I’ve said numerous times that I have no fear of flying - that’s irrational. I do have a very real fear of being annoyed and I feel that although that while I have about a 1 in a billion chance of dieing on a flight I have a near 100% chance of being annoyed by the TSA, the FAA, and other TLA (Three Letter Acronyms). Hence, I don’t like flying. For once, I was not concerned with tieing my money to a depreciating asset (houses depreciate, land appreciates), employment prospects, interest rates, etc. I was totally at peace and yet I was not looking forward to the actual signing. Carson and Zoe were already starting to bicker with each other in the back seat and Julie looked at me from the passenger seat.
“Evan?”
“Yes.”
“This is important… Could you not be… you during the signing?”
I took a deep breath. I knew what she meant and she was trying to be delicate. Yet, it was a bit offensive. That is, if I actually had “feelings”.
“I will try, but we both know this is a sham. I know what I’m doing here. I am agreeing to buy a home. I have agreed to a purchase price, I have agreed to an interest rate, and I have agreed to a time period. The entire signing should consist of a single page that says you hereby agree to buy the property located at this address for this amount financed over this many years at this rate. You understand the monthly payment will be $X and a signature. But no, even before the sub-prime crisis some idiots claimed they didn’t understand what they were getting into so they created a hundred page document that you must sign and initial in a hundred places when all that really matters is the purchase price, the length of the loan, the interest rate, and the monthly payment. I’m not reading anything. I will sign anything that they put in front of me. Reading is a waste of time.”
“Look, these people are professionals and you are insulting their work when you do that.”
“I’ll try.”
We got to the title company and it was nice. All four of us were placed in a conference room with a nice table. I asked for a Coke Zero. Zoe dumped nail polish all over the wood table. We waited.
The processor walked in and I announced, “I’m signing anything you put in front of me. I’m not going to read anything. I want to set a new record and see how fast this entire charade can be accomplished!”
Julie cringed. I think she thought about hiding under the table. Telepathically, she sent me a message that said, “You jerk! You promised!”
The processor said, “Thank God!” I think she wanted to hug me. From there on out, it got downright pleasant. She gave me pieces of paper and said sign or initial. I signed or initialed. We talked and had a grand time. To break the monotony, I asked, “What’s the record for the longest signing?”
“Several days. Someone said they wouldn’t sign the agreement based on the Texas Mineral Rights Act.”
I was flummoxed. “But by not signing, they’re not getting the house. So either they’re going to move into the house and abide by the current laws or not.”
She sighed. “Exactly. He came back three days later still reading every line of fine print and eventually signed but declared he didn’t want to.”
Even with my stated goal of breaking the record for quickest signing; all up we spent over an hour rubber stamping, dumping nail polish on tables, and sucking down Coke Zeros. And just like that, we owned a house. Someone probably paid nearly three thousand dollars for the privilege of us sitting in a nice conference room with a processor rubber stamping documents for stuff I did not read. That three thousand dollars was a complete waste of money and if anyone really cared about protecting consumers instead of ambulance chasers going after dollars, the signing process really should be consolidated down to a single sheet with a single signature that anyone could read and understand. Sadly, this is what our litigious society brings us to.
Which brings me to my next rant. Figuring out the exact monthly payment can be a little tricky. There are concepts I understand like financed amount, loan length, and interest rate. I can ballpark figure out the mortgage and there are amortization tables aplenty available online for free. The rest of the monthly payment is comprised of Homeowner’s Association (HOA) fees (if any), property insurance premiums, and property tax.
For the longest time, I never understood the point of property tax. Basically, it creates an annuity stream out of a purchase making it unlike any other purchase we make. I had a sneaking suspicion that it was an attempt at class warfare where people were trying to soak the “rich” by taxing their expensive houses every year. This seems like a bad strategy considering that everyone, especially renters, pay property taxes. For renters, property taxes show up in higher rents. Property taxes go up, rents go up. However, renters do not have the ability to write off property taxes like owners do, so it seems a bit regressive and defeats the original purpose of sticking it to the “rich”.
When I lived in Australia, I was shocked to find that there was no property tax. There’s an onerous 5% “Stamp Duty” added to the purchase price of the house, but that’s a one time transaction. For the life of me, I could not understand how anyone could justify buying a house when every reasonable economic think tank (starting with http://www.demographia.com/) had declared Australian property to be the greatest Ponzi scheme of our time. My view made me wildly unpopular and upon repatriating, I started watching “UFO Hunters” to reassure myself that I was not a crazy, tinfoil hat wearing conspiracy theorist. However, my opinion did cause me to do a lot of due diligence and research.
So the cause of this great Ponzi scheme can be summed up by:
- Greed and fear of missing out
- Unreasonable extrapolations
- A mainstream media that over and over again declares “property doubles every 7-10 years” as if it were fact
- Tax laws that encourage losing money on “investment property”
- A culture that respects people bragging about losing money on “investment properties” as if losing money were a good thing
- And the absolute worst laws surrounding development in the known universe coupled with “managed growth” idealism
I found most of these root causes from reading MacroBusiness, but the first place I really got a sense of just how bad everything was and how ill informed the public at large came from http://www.prosper.org.au/. Basically, the founder of Prosper is calling for a comprehensive tax review and their central tenet is that a Land Value Tax (LVT) would help end the colossal misallocation of capital that is Australia. I have a great amount of respect for Prosper and David Collyer. I have actually corresponded with David and helped him to write one of the articles on his site. I have no doubt his intentions are good, but I think he is a bit too much of an idealist.
In Prosper’s documentary “Real Estate for Ransom”, they position that the State of California lost their way when they changed their property tax laws and this lead to the epic collapse in 2008. The reality of the situation with California is that during the seventies, rapid house price appreciation was literally forcing people out of their own homes as they could no longer afford to pay property taxes on houses they owned outright. This struck a lot of people as wrong. So the property tax laws were changed. From that point forward, the property taxes assessed on homes would be forever locked at the purchase price. Eventually, the state would collect more money from home price appreciation as homes would have to be sold at some point locking in a new, higher assessed value. From there, Califronia; which is blessed with perfect weather, natural beauty, and is an all around great place to be went through many rounds of boom and bust. The end of the Cold War in the late 80’s brought about some harsh economic conditions for many people employed in the Aerospace industry. California eventually recovered and boomed again before the epic bust in the mid-2000’s. So to blame a lack of property taxes on California's epic bust seems spurious as property taxes existed the whole time.
In fact, the California laws regarding property tax seem remarkably fair. Currently, there is almost no rhyme or reason to the prices affixed to homes in Washington state. Some unknown bureaucracy comes up with some unknown number and taxes are calculated based off of this number. The bureaucracy employes people which cost the state money and their numbers have no basis in reality. In fact, the house I just sold in Washington had an assessed value of $150,000 less than it sold for. Two people came to an agreement based on the market and voluntarily made a transaction. This transaction was recorded and is now public record, but the State of Washington chooses to ignore the transaciton and instead decides to hire people to come up with their own numbers. Some people then choose to fight these numbers and usually win and wind up paying less in property taxes. I, personally, have never fought the assessment, but that’s mainly because I simply can’t tolerate bureaucracy and this is a losing strategy. Swallowing my pride and dealing with some paper pushers could have saved me thousands in taxes over the last decade. No, I disagree with Prosper and hereby state that California got the property tax laws right. No matter how you feel about property taxes, when you purchase a house, you do voluntarily agree to its value implicitly by making the purchase in the first place. Further, I have no faith in any government agency being able to re-assess the value of a house from year to year and there is a very real danger of forcing people who own their homes to move if the taxes get too high.
However, I think Prosper does make a good case for property taxes overall. In Oz, there is a practice known as “land banking” where big developers grab what used to be farmland for pennies on the dollar and then proceed to sit on it. Through political influence, they manipulate the arbitrary “Urban Growth Boundaries”, buy land, and then play the waiting game. No one will buy a house unless it has boring things like roads and sewers and other amenities, but sadly no one wants to pay for these things. Eventually, they get built because people are desperate for housing but the developers trickle houses onto the market to keep the prices arbitrarily high and thus maximizing their profits.
Prosper postulates that if developers paid an LVT, they could not afford to play the waiting game and screw potential home buyers. This explanation of property taxes actually made sense. If you are paying for the land regardless of what you do with it, it sort of forces a rational actor to do something rather than to let it sit there unproductively.
All of this is leading me back to Texas… And my property taxes are a jaw dropping ⅓ of my monthly payment and represent 2.4% of the arbitrarily assessed value of my house. On the one hand, that sucks. On the other hand… I still can’t get over how ridiculously, insanely cheap are house is. I was trying to come up with an assessed value in my head based on the cost of the materials and labor that went into building said house. When I did the math, I came up with the notion that the cost of the land must be approximately twenty-five cents and the entire cost of the house was explained by materials plus labor. But what do I know?
When I got my property insurance I did an interview and discussed square footage, location, materials, etc. The good folks at USAA insisted on insuring my house for $70,000 more than we paid for it as a replacement value. Here I thought the land was worth $.25. According to the actuaries at USAA, it’s actually worth -$70,000.
Now getting back to Australia… I looked at the details of my property tax and saw several references to MUDs or Municipal Utility Districts. In Texas, developers actually want to do something radical like develop land. But, before anyone will live on land, they need roads and sewers. To avoid this waiting game, MUDs are formed and they raise money for infrastructure and fund it through bonds which are then paid for, over time, by residents through property taxes. I suppose I could sit here and complain about the sky high property taxes, but it might very well be the property taxes that keeps things so cheap. Since MUDs are easy to form and fund and Texans are smart enough to know that land is abundant, there is no supply-side constraint.
With this dedication to pro-growth policies, Texas is the second fastest growing state in the US by population. With apologies to North Dakota, the reigning champ, going from 10,000 people to 15,000 people is not nearly as impressive to adding over 4.2 million people in the last decade. It is unbelievable that the state increased its population by over 20 percent and yet the real estate prices barely budged. To this Yankee, that seems like good policy in a true free market economy, high property taxes and all.
For as much as I complain about taxes, I don’t mind paying them so long as I know what I get for my money. In this case, my children are getting a great public education and roads and sewers were built where none previously existed. New land was made livable thus keeping the overall cost of living relatively low by adding supply to meet demand of 20% growth in population in ten years.
In Australia, I lived in Port Melbourne which was extremely close to the Central Business District. In fact, it was exactly 3.5 miles away. It was not what is commonly referred to as “on the fringe”. “The fringe” is always considered undesirable because it is “too far” from the CBD. Depending on one’s definition, the “fringe” starts at 20km from the CBD. Yet for all of the proximity to the CBD, it still took me a freaking hour to get to work whether I took public transportation, drove, or jogged it (throwing in shower time here). So if it takes an hour to get to work in the CBD, what’s the point of being so close?
PUBLIC TRANSPORTATION
Here is a news flash, public transportation is vastly over rated. I swore I did not need a car and forced Julie and the kids to rely solely on public transportation for three months. At the end of a season I came to the conclusion that it’s time consuming, inconvenient, expensive (subsidies and all), and a great big pain in the ass.
Again, to get a measly 3.5 miles from our house in Port Melbourne, I had to either wait for a bus to take me to a tram or walk a mile to the tram. Then I would have to wait for a tram and spend half an hour to go 3 miles. For this privilege, Julie and I would pay $7.60 each every day. For us to go to work, we spent almost $320 a month. If we rode the train instead of the tram, the price would have increased by an extra 40%. All in all, this is not an inexpensive way to travel.
Even worse, not every destination is serviced by public transportation and if one has a family, it is all but impossible to get anywhere without wasting vast amounts of time and not really saving any money. So even in Melbourne, which has a great infrastructure for public transportation, a car is more or less a necessity.
Speaking of cars, I have driven down the Monash Freeway with five lanes of super highway going at a speed of 42 miles per hour and not a smidge over because that would instantly get one a ticket, trust me I know. It seems like Australia was committed to making things take as long as possible even when good infrastructure exists.
Texas, by comparison, has the highest speed limits I have ever seen in the United States. We live off a simple two lane country road. The posted speed limit is 55 MPH (89 km/hr). When I drive up to Dallas, the speed limits are 80 MPH (130 km/hr), but the posted speed limit doesn’t really matter as no one is getting a ticket for doing less than 95.
So, in Texas, I live on “the fringe”. I’m a good 22 miles from Austin. I really don’t give a shit as the speed limits are so high I can be downtown in rush hour in about forty minutes. While I don’t have a prayer of finding public transportation anywhere near me, I don’t really care as I have come to the conclusion that public transportation is, by and large, useless. It is nothing more than a tool used by well meaning liberals who want to exert government control, spend lots of money, and accomplish nothing.
When I first arrived in Austin, it took a mental shift to get over the distances I was driving regularly. Our closest supermarket is six miles away. However, given the commitment to high speed limits and ample roads, six miles equals eight to ten minutes. Given a choice between driving my own vehicle or paying $7.60, sitting around waiting, getting on a bus, spending fifteen minutes to go one mile, waiting to get a bus home, trying to get all my groceries on to the bus, and then schlepping all the groceries to my house - I think I’d rather drive.
SIT BACK AND ENJOY THE SPRAWL
I stood outside of a Zagat rated steakhouse in North Dallas with the closest thing I have ever had to a mentor.
“I’m confused. Are we in Dallas?” he said.
“I don’t know. It’s all rather arbitrary.”
“But there are strip malls all over the place. This can’t be Dallas.”
“I don’t think you understand just how big the Dallas metropolitan area is. From where we stand to get to AT&T Stadium (home of my beloved Dallas Cowboys) it would be well over and hour.”
His jaw dropped. “You’re joking.” He immediately went to ask the valet if this were true. The valet insisted it was at least an hour and fifteen minutes away.
I have been to his place in Alki, West Seattle. His condo is on the fourth floor overlooking an expansive view of the Olympic mountains, the San Juan islands, and the Puget Sound. When he wants to get a beer or grab a coffee there are funky taverns and cafes all within walking distance. To live any other way simply does not compute. I have heard this exact complaint from several Seattlelites who have visited Texas. But the truth is, Seattle sprawls just as much as Texas. From Olympia to Everett is one big suburban sprawl. However, the area known as “Seattle” as bounded by Lake Washington on one side and the Puget Sound on the other is easy to identify. Most of my friends work in tech companies that are either in Seattle or the suburbs in relative proximity on the other side of the lake and would never consider Everett or Olympia as part of Seattle, but Dallas simply fails to make this distinction.
There was a time when suburbia disgusted me and I loved taverns and cafes. I once lived in Freemont in a halfway house for wayward consultants who only seemed to be there a few times a month and were determined to raise hell and refuse to drive anywhere when we actually were there (no sense driving when it was near impossible to park). I stumbled to and from the Buckaroo tavern, rented videos from an independent store across the street (I’m dating myself here), and went to funky non-chain restaurants. I think my share of the monthly rent was $400 a month.
Even though I lived in an urban high-density environment, it was the availability of alternative suburban living arrangements that kept my costs low.If it were not for the Seattle “fringe”, and if arbitrary Urban Growth Boundaries were established, it would cause my share of the rent to skyrocket.
I got older and my tastes changed. Instead of basing my decision on where I want to live based on close proximity to dive bars; I now value school systems, a little space for my kids to play outside, and some room in my house so I can get away from them from time to time. I love suburbia and I love choice. Sprawl enabled me to live in an urban environment as a young renter without bleeding every cent from my paycheck and now enables me to have a home suitable for raising my children the way I want to.
Sprawl is not a problem and managed growth is not a solution. The answer lies in rational actors making rational choices. There is no one size fits all answer to be had. For those that want high density living - go to Queen Anne Hill, Alki, or South Congress Street. For those of us who want a little space, so long as the commute is reasonable, the “fringe” is perfect.
NOTHING TO DO AND NOTHING BUT CHAIN RESTAURANTS
I sat outside a Starbuck’s in Bellevue’s Loehman’s plaza in August with a friend. It was 58 degrees and raining and we discussed my upcoming move.
“You know, there’s nothing to do in Austin.”
“I don’t do anything anyway, but play with my kids and watch movies at my house. Occasionally, I go on a bike ride, but that’s the sum total of my life these days.”
“You know the only place they have to eat is Applebee’s.”
This made me pause as I don’t mind chain restaurants as much as most people. I fucking hate Applebee’s. While Red Robin provides mediocre food at extremely low prices in a family friendly environment, I find Applebee’s to provide low quality food at mediocre prices and that doesn’t work for me. I imagined a world like the original 1995 “Judge Dredd” where Sandra Bullock’s character says every restaurant is a Taco Bell and replaced that with Appleebee’s and then I shuttered. Maybe it was time to call the move off.
He was wrong, of course. Yes, there are Applebee’s, Olive Gardens, Chilis, and other abominations. There are also plenty of gourmet food trucks, no name Mexican restaurants, and family joints I can enjoy a decent and occasional meal out at. And the BBQ? Freaking amazing!
As far as nothing to do… There is UT football which is almost a pro team atmosphere. There is SXSW. There is ACL. The X Games is moving to Austin. There is a cul-de-sac full of kids which my kids can run and play safely in. There is always something going on.
More over, I don’t go to bars that often. I do, however; like to have people over, let the kids run around, and cook some BBQ. As for entertaining, for the first time in my life, I have a pool table/ping-pong table which has already provided hours of entertainment. I have my beloved movie room. I am not bored.
THINK OF THE CHILDREN
I am a little disappointed in myself that I have moved my kids around so much. I want to provide them with a stable environment and to let them be a part of a community. I hope that are roots take here and my kids can complete in high school in Austin. I would be happy for them to attend the University of Texas and for them to find jobs in the area. If Texas continues to grow and expand, jobs should not be a problem. If the sensible development policies stay in place, they can actually afford to buy a starter home on the “fringe” or enjoy renting in an urban environment subsidized by the existence of the “fringe”. At today’s prices, a young professional can afford to buy a home and still enjoy life - with a roommate it would be downright easy and that’s something I couldn’t say about Washington and definitely not about California.
Although there are many things I disagree with when it comes to Texas Governor Rick Perry, I believe he is 100% right about the future of Texas. There is absolutely nothing magical about Silicon Valley and I applaud his efforts to attract technology companies to Texas. San Francisco hipsters beware, your jobs can be done just as well, perhaps better, in Texas at a lower price due to the lower cost of living. Austin in particular offers enough activities and Bohemian lifestyle choices to make it a viable alternative to Northern California and attract top talent with a lower cost of living.
CONCLUSION
It turns out, Texas is not full of inbred dumb hicks like I originally thought. Sure they might mangle the American language and they don’t recognize that the word “you” is both singular and plural thus making the word “y’all” unnecessary, but they have committed themselves to sustainable growth and great economic policies. I, personally, hate taxes but at least here I know what they are being used for. The taxes are, in a weird way, keeping the land market competitive and offering a choice between high density urban living and less dense suburbia. So far, I like being a Texan. Oh, and fried pickles are delicious.
