Why Are Housing Prices So High - Does Income Tax Play A Role

Question

As you can see from the numbers below, the states that carry the highest penalty for making a profit are also the ones, generally, with the highest cost of housing. They also tend to be the states that are either "sanctuary" states or "sanctuary" cities that welcome illegals which drives up taxes to care for them.

Because of the higher cost burdens of paying for people who aren't contributing their tax share, those that are actually paying taxes (you)  have a higher tax burden. That tax burden is calculated into what is needed to purchase and maintain a house. More taxes equates to less disposable income.

Your price for buying that investment property is/should be a "profit motive". Property taxes play a huge role as well. Some states have a burdensome "real estate transfer tax".

If it isn't profitable, why are you investing there? If you can make considerable more by investing in the state next door, why wouldn't you?

State

Code

2000 Top Rate

2025 Top Rate

Change

Cost up/down

California

CA

9.3

13.3

4.00

up

Hawaii

HI

8.8

11

2.25

up

New York

NY

6.9

10.9

4.05

up

New Jersey

NJ

6.4

10.8

4.38

up

Minnesota

MN

8

9.9

1.85

up

Oregon

OR

9

9.9

0.90

up

Massachusetts

MA

12

9

(3.00)

Down

Vermont

VT

% of federal liability

8.75

n/a

not available

Wisconsin

WI

6.8

7.7

0.88

up

Maine

ME

8.5

7.2

(1.35)

Down

Connecticut

CT

4.5

7

2.50

up

Washington

WA

0

7

7.00

up

Delaware

DE

6.4

6.6

0.20

up

South Carolina

SC

7

6.2

(0.80)

Down

Rhode Island

RI

% of federal liability

5.99

n/a

not available

Montana

MT

11

5.9

(5.10)

Down

New Mexico

NM

8.2

5.9

(2.30)

Down

Maryland

MD

4.8

5.8

0.90

up

Virginia

VA

5.8

No change

Idaho

ID

8.2

5.7

(2.50)

Down

Kansas

KS

6.5

5.6

(0.85)

Down

Georgia

GA

6

5.4

(0.61)

Down

Nebraska

NE

6.7

5.2

(1.48)

Down

Alabama

AL

5

No change

Illinois

IL

3

5

1.95

Down

Oklahoma

OK

6.8

4.8

(2.00)

Down

West Virginia

WV

6.5

4.8

(1.68)

Down

Missouri

MO

6

4.7

(1.30)

Down

Utah

UT

7

4.6

(2.45)

Down

Colorado

CO

% of federal liability

4.4

n/a

not available

Mississii

MS

5

4.4

(0.60)

Down

Michigan

MI

4.4

4.3

(1.10)

Down

North Carolina

NC

7.8

4.3

(3.50)

Down

Kentucky

KY

6

4

(2.00)

Down

Arkansas

AR

7

3.9

(3.10)

Down

Iowa

IA

9

3.8

(5.18)

Down

Ohio

OH

7.2

3.5

(3.70)

Down

Pennsylvania

PA

2.8

3.1

0.27

up

Indiana

IN

3.4

3

(0.40)

Down

Louisiana

LA

6

3

(3.00)

Down

Arizona

AZ

5

2.5

(2.54)

Down

North Dakota

ND

% of federal liability

2.5

n/a

not available

Alaska

AK

0

No income tax

Florida

FL

0

No income tax

Nevada

NV

0

No income tax

New Hampshire

NH

5

0

No income tax

South Dakota

SD

0

No income tax

Tennessee

TN

6

0

No income tax

Texas

TX

0

No income tax

Wyoming

WY

0

No income tax

Marcus Auerbach · Answer

There is also a strong correlation between ice cream sales and shark attacks. As soon as people consume less ice cream, the shark attacks go down!

James Hamling · Answer

This is a gross over simplification and a correlation=causation fallacy when it comes to Minnesota.

Minnesota has one of the highest INCOMES in the Nation. Both individual and household.

Minnesota is also founded, built and in large part still operates as a Scandinavian Culture.

This is why Minnesota has more parks, trails, and assorted outdoor venues than ANYWHERE in the Nation. It's a social expectation in Minnesota that there is jogging/walking trails, ample sidewalks, well lit streets, playgrounds and parks in EVERY neighborhood, free zoo's, free beaches galore.......

There is a reason why Minnesota is a TOP tourism state, and Minnesota invests wisely into it very heavily.

THIS is one of the reasons for high incomes. It's not a byproduct of tax's, it's a byproduct of the industry that's driven from the investments made via the tax's.

Minnesota also has one of the highest residencies of millionaires. And a significant volume of 2nd, 3rd homes.

Is there plenty of "dumb" in Minnesota from CITIES of stupidity, dang-right there is. But don't get it twisted, in a State nearly the size of Texas a handful of moronic cities is to be expected. Just ask Texas, they have some "red-headed step-children" too.

Minnesota is "the" capitol of assorted engineering, medical and agricultural fields.

Do you eat? Do you get medical care? Do you use anything built via engineering? Yeah, that's a recession buffered basis I'd say.

6 figure income tenants is such the norm it's an expectation for well over 50% of my portfolio. INDIVIDUAL income. Household income all but has to be 6 figures in the vast majority of units.

Do you know what comes with such tenants?

Ambition.

CARE of things like there credit, of not getting in bad with a Landlord who can readily garnish wages etc..

Tenant nightmares here are the ever so rare exception UNLESS your playing in a sandbox that is designed for such, like C/D class "poverty" income levels.

Look it up, what we define as Poverty in Minnesota is MORE than the median income for some other States..... Yeah, think on that for a moment.

James Hamling · Answer

What tax?

What rate?

Property tax?

Sales tax?

Carl Polad Tax?

Which tax are you talking about?

Do you think Government has a secret garden they can grow money tree's in? So the "bad" places tax the people and the "good" one's just go out and shake the tree?????

It's not complicated Ken, the local Government can only do what they have the $ to do.

So if your happy with them doing next to nothing, and having next to no infrastructure and public spaces, well good for you and feel free to live where there is nothing.

But when it comes to INVESTING in Real Estate the #1 metric that MAKES MONEY is renting a property WHERE PEOPLE WANT TO LIVE.

And what get's people wanting to live in a place?

That it's safe. Like the safety that comes from ample Police on staff. Which cost's $. $ that has to come from somewhere, so tax's happen.

Or where it's CLEAN. And clean means city workers. Workers who again, cost $.....

Or where there is nice services, like parks, sidewalks, beaches......

It's called a balance Ken. Zero tax's is just as bad as Communist tax's. Your arguing 1 extreme vs another. BOTH are bad.

I am 100% for CLARITY in things, and all the power as local as humanly possible.

Because than I, the tax payor, have the power. TO say what I DO want, and DON'T want. And I can make up my own dang mind if I am willing to pay for that next thing or not.

Just like I did last go-round when I, and a majority of neighbors voted NO on the boogie new school plans. We told em scale it down, simplify, it's ridiculous.

And before that when I voted YES on our new road improvements, as the majority of my neighbors did also. I happily paid for it.

So yeah, I have. And I have also said no at times. It all depends. I am a value shopper.

Tenzapa Wakombe · Answer

You bring up a valid point about tax burden and profitability—both are crucial when deciding where to invest. High-tax states often have higher costs, which can eat into returns, while lower-tax states may offer better cash flow and affordability.

I am in the Middle Tennessee area (Nashville, Chattanooga, and surrounding areas) Tennessee has:

✅ No state income tax – Keeping more of your rental income.
✅ Landlord-friendly laws – Fewer restrictions make property management easier.
✅ Lower property taxes than many high-cost states – Reducing ongoing expenses.
✅ Strong rent-to-price ratios – Ensuring better cash flow potential.

Profitability should always be the deciding factor. If an investment doesn’t yield strong returns due to high taxes or costs, it makes sense to explore more business-friendly markets.

Andy Finneran · Answer

It IS profitable and that is why I and lots of others are invested here.

Can you share your numbers of the costs of these "sanctuary" states and cities? Do you really think there are huge budgets to pay for illegals?

Higher pay equals more disposable income even if a few percent extra goes to the state. We get better services and better education for our kids. Property taxes are expensive but that is based on different town or areas. The ones with the best school systems generally have higher taxes so it's a good deal if you have kids.

I've never viewed taxes as a penalty for making profit. Do you actually decide to stop making money because you have to pay taxes? You really should look at your revenue because for every dollar you make you get to keep what you aren't taxed. If you live in a state you mentioned like I do you get paid a lot more than in the states on the bottom of the list. Even after taxes you make a better profit. Housing is more expensive but you have the money to pay. When your house appreciates it's a $500k house vs. a $250k house price. A 10% increase in value on each of those is a big difference.

Your final assumption is that if it isn't profitable why are you investing there is kind of ridiculous. Investors look to make a profit so are you saying investors in these places aren't profitable? If you invest further away you have other expenses that eat into your profits (property management, out of state taxes, travel expenses, etc.).

Marcus Auerbach · Answer

My point is you have correlation, but not causality.

You have to look at the total tax burden - not only income tax. All States provide more or less the same services for a very similar cost, so what they are not raising in income tax they have to bring in with other taxes.

Texas for example is famous for no income tax, but they are one of the highest in both sales tax and property tax, so all things considered Texas is pretty average.

Florida's total tax burden is one of the lowest in the country, but the cost of living is not. And it's about to go up quickly because of property insurance.

Here is a cost of living index, FL is on the higher end.

But that is not the whole story either.

You also have to consider income. If you make more money you can afford more. Not to pick on FL, but they make a really good example, because while their cost of living is on the high end the average income is one of the lowest.

BTW, I am in Milwaukee. And one of the reasons why Wisconsin is quietly and slowly gaining popularity in every moving statistic is because you have a moderate cost of living, but good income, a moderate climate without extreme weather patterns, heat or stroms and plenty of fresh water from the Great Lakes. And a high quality of living, that's why our number one migration is from Chicago and Illinois.

Is that impacting real estate prices? Looks like it does, Redfin says Milwaukee was the #1 hottest real estate market in the US in February with a 20% increase in median price. I have to add: February was an outlier, we are realistically at about half of that.

Why Are Housing Prices So High - Does Income Tax Play A Role

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