Does an overinflated housing market shift wealth downward

Wow, that’s dumb. But it applies to everyone, right? Not a rich person loophole?

It’s a “majestic equality” situation: In principle, anyone at any income level could take advantage of tax abatements, but the poor aren’t likely to afford the new construction or extensive renovations needed to trigger them.

I can’t speak for other jurisdictions, but this would be false in Washington, too. We don’t have California’s basis cap and all that, but it’s inherent to how the taxes work here. Taxing districts (a city, a county, a school district, a water district, etc.) create an overall budget which is constrained by a bunch of various rules. There’s a certain amount they need to collect in revenue from property taxes, and that is farmed out equally to all the property owners in that district according to assessed value. If you own 1% of the assessed value of property in that district, you pay 1% of that budget in property tax. So if everyone’s property increases at an equal rate, your taxes would stay the same. If yours increases disproportionately much, your taxes would rise; but conversely, if yours rises, but by less than the weighted mean, your property taxes would fall.

Now, our taxes have been going up, but that’s because of voter-approved initiatives. Those initiatives may be getting approved because of a wealth effect from increasing property values. But that’s a second-order effect, not a first-order one.

Leaving the 1% out of it.

If a developer builds a bunch of McMansions in an outer ring suburb. Wouldn’t these be bought by upper middle class people?

These upper middle class people would sell their middle class house. Taking price pressure off middle class inner ring suburbs.

Allowing middle class people living in working class neighborhoods to move up. Selling their working class house. Taking price pressure off working class neighborhoods.

Allowing working class renters to buy a working class house. Taking price pressure off rents.

Allowing the working poor to have a decent rental housing situation.

Building affordable housing would of course be a more direct way of helping the lower end of society. But i think McMansions help too and is kinda what the OP is getting at.

And by “affordable housing” i mean below market value. Which isn’t really economically viable. Unless the government subsidizes it. Which maybe they should.

Would it really be a developer buying the houses, or a hedge fund? The latter is buying double-digits worth of houses at present, not with the intention of selling them, but turning them into rentals. It’s both helping to inflate prices and further reducing an already very constricted housing inventory.

Leaving out the accuracy of your train of thought. How is this a feature of an overinflated housing market?

Housing inflation shifts wealth to older people.

Yeah this is what I was thinking. Older people are locking in their wealth gains selling houses and downsizing, while younger buyers are taking on debt to buy (not necessarily a bad deal when interest rates are so low). Not sure how much the volume of this kind of transaction compares to investors buying property to rent, though.