The cost of rising home values
The rise in home values has led to an increase in the cost of owning a home, particularly where property taxes are concerned. And if you think your taxes are high now, it could get worse.
An analysis of U.S. Census data by Today’s Homeowner, a home-improvement website and TV program, found that while the average property tax bill rose by nearly 20% between 2016 and 2021, the average effective tax rate fell by 0.15%. To understand what that means, and its implications for your own tax bill, it’s important to understand how property taxes are calculated.
Your property tax bill is based on the assessed value of your property, multiplied by your local government’s tax rate. Local governments use different formulas to determine the assessment rate, which can range from 50% to 100% of your home’s market value. For example, suppose your home’s market value is $250,000, your county’s assessment rate is 80% and your tax rate is 0.70% Based on an assessment of $200,000, you would owe $1,400 a year in property taxes.
Homeowners in areas that have experienced significant appreciation in home values should be prepared for the possibility that their local jurisdiction will raise rates to match higher assessments — even as home sales have leveled off, experts say.
For local governments, inflation has driven up the cost of everything from public employees’ salaries to school supplies. In addition, in the wake of the COVID-19 pandemic, commercial property owners are struggling with vacancies, which has led to a decline in revenue from those sources.
When commercial properties are vacant, the value of the buildings declines, which lowers the municipality’s tax base, writes Robert Barber, chief executive officer for property data provider ATTOM, in an email to Kiplinger’s. “Vacancies or empty properties lower the base upon which taxes are levied, which can lead to higher tax rates and higher taxes for every property owner.”
At the same time, local governments face pressure from homeowners and commercial property owners to keep property taxes in check, Barber says. High taxes could cause some homeowners and commercial landlords to move, as well as dissuade prospective home buyers, resulting in lower home prices and depressed property values.
With that in mind, lawmakers in several states are considering measures to curb property taxes. In Texas, Republican lawmakers have proposed lowering the appraisal cap on how much a home’s taxable value can rise each year, to 5% from the current 10%. In Colorado, where average property taxes have risen more than 40% in the past five years, lawmakers have pledged $700 million in property tax relief in 2023 and 2024, and Gov. Jared Polis wants to increase that amount by another $200 million. Lawmakers in Wisconsin and Nebraska are also considering property tax relief measures.