Inequities from property tax limits grow with rising home values, a recent 50-state report shows. With Measure 50 in effect, Oregon is no exception.

Lincoln Institute of Land Policy

Same House, Different Tax Bill

Inequities from Property Tax Limits Grow with Rising Home Values, Report Shows

By Will Jason,
June 30, 2021

Excerpts:

In Fresno, California’s fifth-largest city, someone who has owned a median-priced home for 11 years—the average length of ownership there—paid less than $2,000 in property taxes last year, more than $1,400 less than the new owner of an identical home, who paid more than $3,400. This disparity between the tax burden for new and longtime homeowners grew by more than 14 percent last year alone in Fresno, recently named the nation’s hottest housing market by the Los Angeles Times for its fast-rising real estate values. This tax disparity has more than tripled in Fresno over the past five years, according to the annual 50-State Property Tax Comparison Study by the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence.

The 50-State Property Tax Comparison Study explores several key factors influencing property taxes, providing a comprehensive analysis of effective property tax rates—the tax paid as a percentage of market value—in 123 cities and towns in every U.S. state and Washington, DC. 

Fresno is one of 29 large cities included in the report where assessment limits cap annual growth in the assessed value of individual properties, a policy that favors longtime homeowners. The faster real estate prices rise, the more assessment limits shift the tax burden to newer homeowners, whose properties are assessed closer to the market value. Overall, in the 29 cities with these assessment limits, new homeowners paid 30 percent more in taxes last year than those who have owned their homes for the average duration within their city. That difference was more than double the 14 percent disparity in the same cities five years earlier.

In addition to providing data on effective tax rates, the study explains why property taxes vary so widely from place to place. The extent to which a city relies on the property tax is chief among the reasons. Cities with high local sales or income taxes do not need to raise as much revenue from the property tax and thus have lower property tax rates on average. For example, Bridgeport, Connecticut, has one of the highest effective tax rates on the median-valued home, while Birmingham, Alabama, has one of the lowest. But the average Birmingham resident pays 39 percent more in total local taxes than the average resident of Bridgeport when accounting for sales, income, and other local taxes.

Commercial property tax rates on office buildings and similar properties also vary significantly across cities. The effective tax rate on a $1 million commercial property is 2 percent, on average, across the largest cities in each state. The highest rates are in Detroit and Chicago, where rates are more than twice the average for this group of cities. Rates are less than half of that average in Cheyenne (WY), Seattle, and Charlotte.

The report is available for download on the Lincoln Institute website: https://www.lincolninst.edu/publications/other/50-state-property-tax-comparison-study-2020

Will Jason is director of communications at the Lincoln Institute of Land Policy.

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Comment:

Lincoln Institute’s 50-State comparison study shows that assessment limits shift the tax burden to newer homeowners, whose properties are assessed closer to the market value.  It also shows that tax savings from assessment limits vary widely across individual taxpayers within the same city.

Tax savings will be greater than average for homeowners whose home values have grown faster than average for the city and have owned their homes longer than average.  Oregon’s ill-conceived assessment limitations under Measure 50 have done exactly this.  

The 2019 LVT study by Northwest Economic Research Center confirms the inequities caused by tax limitations that have accumulated over the past 22 years. Properties in the low value neighborhoods of outer southeast Portland are subject to a higher effective tax rate under the current tax system.  Higher value properties in the inner northeast neighborhoods whose owners’ home values are growing rapidly pay disproportionally low taxes.  

The solution?  First, a change back to real market assessments causes a reverse shift in tax burden.  Then a change to a split-rate Land Value Tax, with a high effective rate on land and a low rate on improvement value, results in a significantly more balanced rate distribution and is slightly income progressive, as contrasted to the marked regressivity under limited assessment equal rate system.

From Tom Gihring, Research Director
Common Ground OR-WA