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Dealing with Property Tax Challenges Arising from Soaring House Prices: State Responses and Considerations
Jul 9, 2024
Dealing with Property Tax Challenges Arising from Soaring House Prices: State Responses and Considerations Dallas
By   Internet
  • City News
  • U.S. Housing Prices
  • U.S. Property Taxes
  • U.S. Housing Market
Abstract: When house prices soar, homeowners often rejoice at the increased value of their properties. However, this appreciation often comes with a headache: rising property taxes.

Some states are taking measures to mitigate this issue by limiting tax revenue growth or slowing the increase in assessed property values to ease the burden on homeowners. Voters in Colorado and Georgia will vote on related proposals this November. Meanwhile, Alabama, Wyoming, and Kansas have enacted new laws aimed at restricting future property tax increases. Other states are pursuing more limited tax relief measures.

Danielle Hale, Chief Economist at Realtor.com®, points out, "All these proposals involve issues of anticipated tax revenue and the distribution of tax burdens." She emphasizes that paying property taxes supports vital local public services such as schools, libraries, and parks, crucial for community residents' quality of life.

According to the Case-Schiller Home Price Index, house prices have risen by 54% over the past five years.

According to the U.S. Census Bureau, state and local governments collected approximately $760 billion in property taxes last year, a 31% increase from 2018. This growth primarily stems from the appreciation of new constructions and higher assessed values of existing buildings.

Dealing with Property Tax Challenges Arising from Soaring House Prices: State Responses and Considerations


The complexity of property taxes lies in their assessment and collection at the city and county levels, with varying regulations across states. For lawmakers, altering these intricate regulations can be a daunting challenge and may sometimes backfire.

Since 2001, Washington state has capped annual property tax revenue growth at 1%. However, the state currently faces severe county budget issues as its tax revenue growth fails to keep pace with rising government service costs.

In 1982, Muscogee County, Georgia, passed a law freezing property taxes for existing homeowners. This means long-time property owners pay significantly less in property taxes compared to recent buyers.

Susan Widenhouse, Chief Assessor of the county, noted in an interview with the Associated Press that properties of the same value could have vastly different tax bills. Properties sold in the 1980s pay only $8 annually in property taxes, while those bought five years ago for the same value pay $3,236.

Other states face trade-offs when implementing targeted tax relief. For example, reducing taxes on primary residences may increase the burden on rental and commercial properties. Conversely, providing tax exemptions for seniors or veterans may lead to increased tax burdens for other taxpayers.

Danielle Hale states, "Ideally, we want property taxes to be low and broad-based to avoid distorting people's decisions." She gives an example that property tax incentives might make people feel they must stay in a certain location, fearing loss of benefits if they move, which is not the desired outcome.

This November, Colorado voters will decide on a constitutional amendment that would cap total property tax revenue statewide at 4% of the previous year's total. Known as Initiative 50, the measure requires another ballot question for voter approval to exceed the 4% growth limit in property tax revenue. The initiative was spearheaded by the Colorado Advanced Research Institute, which is also advocating for the certification of Amendment 108 aimed at reducing assessment rates for residential and non-residential properties.

Dealing with Property Tax Challenges Arising from Soaring House Prices: State Responses and Considerations


Property taxes in Colorado have long been a contentious issue. However, according to data from the Tax Foundation, Colorado residents pay the lowest property taxes in the U.S., with an effective tax rate of 0.55% for owner-occupied homes.

Meanwhile, Georgia voters will decide on a measure allowing assessments on residential properties to rise no more than the inflation rate.

State governments have the option to opt out of this cap provided they publicly announce their intentions and hold public hearings. Georgia Lieutenant Governor Bert Jones stated in a release, "While the opt-out provision is included, seeing local governments use it is disappointing." He stressed that amid historically high inflation, soaring debt, and increasing expenditures, local governments should focus on cutting costs rather than allowing them to rise.

This year, Georgia has rolled out several tax reduction measures that state government can afford after several years of budget surpluses. According to the Tax Foundation, the median effective property tax rate paid by Georgia residents on their owner-occupied homes is currently 0.92%.

Several other states will also vote on more limited ballot measures related to property taxes this year. Alabama passed legislation capping assessment value increases for residential and commercial properties at 7% from the previous year. Wyoming Republican Governor Mark Gordon signed several bills aimed at reducing property taxes, including one that limits annual increases in property taxes on residential buildings and land to 4%. Other bills provide exemptions for veterans and homeowners aged 65 and older.

Kansas also passed a bipartisan bill raising the property tax exemption for residential properties to $75,000, with Republican Governor Laura Kelly stating this will save homeowners $236 million over five years.

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Dealing with Property Tax Challenges Arising from Soaring House Prices: State Responses and Considerations
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