Are lower tax rates tied to higher appreciation?

Kenneth R. Harney

WASHINGTON — Last year, property taxes collected by local and state governments rose by an average of 6 percent, generating a combined $293.4 billion — almost three times the annual rate of inflation.

But the tax rates you pay might differ greatly from those paid by owners elsewhere.

In Essex County, New Jersey, the average property tax on a single-family home last year was just under $12,000, according to a new study by ATTOM Data Solutions, which tracks information on 155 million U.S. properties. In West Virginia, the average was $807.

Sure, average home values in New Jersey and West Virginia differ dramatically, as do the effective tax rates imposed by local governments to pay for the services provided.

But is there a link between property-tax rates and the rate at which a home appreciates in value?

I asked ATTOM to statistically compare recent appreciation rates and home-value data with effective local property rates nationwide. The findings proved intriguing:

• Homes in areas with the highest effective property-tax rates — that is, the average tax rate expressed as a percentage of estimated home values — seemed to appreciate more slowly in the past year and the past five years on average than homes in markets with high tax rates — 28 percent in the past five years, 3 percent in 2017.

• Homes in the middle third of markets, where effective tax rates are more modest, experienced higher rates of homevalue appreciation — 35 percent over five years, 7 percent in 2017.

• Homes in the bottom third saw values increase 42 percent over five years, 5 percent last year.

Keep in mind that taxes alone don’t determine demand or home-appreciation rates. Factors such as local economic conditions, employment and school quality also play a part.

On average, though, low to modest tax rates seem to lead to higher recent appreciation.