Paul Caron notes that even though (according to the Case-Shiller index) housing values have fallen 16% property taxes have risen 4.2%. The explanation offered in Mr. Caron’s comments to the effect that reassessments aren’t generally done annually would explain taxes remaining the same in the face of falling values but I don’t see how it explains taxes rising.
Let me offer a few possible explanations:
- It may be that the states that have seen tax increases have Prop. 13-type provisions in place. Those can result in enormous sudden increases in property tax revenues since the tax is increased only when properties are sold.
- Tax revenues are based on value, rates, and the number of houses being taxed. One of the (in my view adverse) consequences of the homebuyer’s subsidy was that it tended to increase the total number of houses.
- It may be that state and local governments, heavily dependent on real estate taxes, have increased marginal rates in reaction to revenue shortfalls elsewhere. I haven’t seen that around here (yet) but it’s certainly possible.
While prices are fairly static here in Oklahoma, there is a 5-percent annual cap on assessment increases, except when there are substantial improvements or (as with Prop 13) when there’s a transfer of property. Per state law, they do assess every year. Over a period of time, a gap develops between the market value and the figure the assessor is required to use for the market value as a result of the cap; when prices are moving downward, some of that gap is closed. On my own house, which declined in value by about 2 percent, the entire gap was closed, which means my taxes will rise slightly. (The exact amount is not known yet, since the millages haven’t been set.)