Don't Buy It (The Bad Math or the House)

In a City not far from us, the municipal government in rolling out a new Walk to Work program. In theory, it sounds great: local employers team up with the government, Realtors, banks,and local service groups (schools, emergency services, etc.) to create the ideal home buying environment for potential homeowners. They target employees of big local employers and push to get them to move into empty or for-sale houses in the area, highlighting benefits such as being able to walk to work, knowing your neighbors, etc. The goals, of course, are to reduce the empty/ sub-standard housing in a low-income or derelict areas by enticing higher-income families to buy, invest in, and rehabilitate local housing stock, and to increase the tax base to support programming and benefits for low-income residents. I honestly think that most of the people involved believe they're doing something good.

But government math is flawed. If the targeted potential buyers aren't careful, they're going to pay the price in more ways than one.

Let's look at how the program works in practice, shall we?

If you're a renter, you're not paying property taxes. This is what makes you such a keen target for the government in the first place. You are paying plenty of income taxes, though, and if you have the kind of solid job they're targeting, your taxes have likely just gone up – a lot.

If you buy one of the target houses, you can expect to need to sink a bunch of money into it. The fact is that no matter how attractive the program terms and the subsidies the government will throw in for the initial purchase price, the property will need work and it will be expensive. Being in the City, there won't be any way around the mandatory permits and inspections, either. With Code Enforcement being one of the primary ways police forces are looking to keep the area crime rate in check, you can expect to sink a pretty penny into useless and aesthetic concerns as well just to avoid fines.

When you and your coworkers start to improve your properties, the taxes start to climb. Not only are you now paying property taxes and school taxes, but every improvement you make raises the price you're required to pay. With the value of your area increasing, thanks to an influx of invested new homeowners, taxes go up even more. If a good portion of you have families, expect school taxes to rise as well as the district expands programming to meet demand.

But the money you and your neighbors are pouring into the tax coffers aren't going into the kinds of programming and improvements you or your families will benefit from – they're being used to support the residents of public housing and the per-existing low-income population.

Fast forward a few years. Had you stayed a renter, you could have managed the income tax increases and still been able to put some money away for a rainy day. As a homeowner, enticed by the government program, you're broke and struggling. Even if your job stayed steady, the costs associated with buying your home have sky rocketed. Between the income tax hikes associated with Obamacare and the property tax hike cycle discussed above, you're going to be hard pressed to keep up with your payments. Meanwhile, your kids go to a school that is forced to spend most of its funding and energy managing the problem children of the neighborhood and your town has little money left after paying out its required support for low-income residents to fund the libraries, youth sports leagues, and municipal improvements that would apply to you.

How you will feel at tax time if you let
the government or the bank do math
for you!

I'm not bashing home-ownership, or suggesting nefarious intent on the part of the employers or community supporters of such programs. But I would caution anyone tempted to participate in a government-supported housing program of any kind to be very careful. They may have the best of intentions, but the reality is that they can only afford to support programming that increases the tax base – i.e. finds new ways to squeeze money out of the people working their butts off to make it so it can be “redistributed”.

You cannot count on bankers or the government to do math for you, or to give you a realistic portrait of what you can afford. They won't take into account necessities like food and clothing, and they certainly won't admit to the tax hikes they know are coming. Do your own math – and do it with an eye towards healthy skepticism and Murphy's Law. Because when it comes to the government, and particularly government supported housing programs caveat emptor is the rule of the day.