CAMBRIDGE, MA— The Lincoln Institute of Land Policy has released a new Policy Download, When Property Values Rise, Do Property Taxes Rise Too? Written by Adam Langley, associate director of tax policy at the Lincoln Institute, and Thomas Brosy, senior research associate at the Urban-Brookings Tax Policy Center, this first-of-its-kind report explores how and why the relationship between property values and property taxes varies across the United States. It also proposes policy solutions to ensure that spikes in housing prices do not lead to rapid growth in property tax bills.
Over the past decade, and especially after the COVID-19 pandemic, US housing prices have grown at a record pace. Homeowners are often concerned that property taxes will increase as well—but the relationship between property values and property taxes is more nuanced than this popular perception. In fact, the report finds that increases in property tax bills generally amount to a fraction of the growth in property values, because local governments typically reduce property tax rates to avoid spikes in tax bills in these situations.
“For most taxpayers, reducing local property tax rates is all that is needed to prevent rapid appreciation in property values from leading to excessive growth in tax bills,” said Langley.
But the extent to which local governments actually adjust tax rates in response to property value changes varies widely across states. For example, in some states, changes in assessed values have almost no impact on property tax bills, while in others, increases in values lead to a nearly 1-to-1 increase in property taxes. Many states fall in between, with a 1 percent increase in property values leading to a 0.3 to 0.5 percent increase in property taxes. The report includes estimates for 33 states on how property tax revenues respond to changes in property values; it’s the first study to document how this relationship varies across states.
“Many states have property tax limits meant to maintain affordability for homeowners, but they can weaken local fiscal autonomy and create significant inequities among homeowners,” said Brosy. “To maintain a steady, fair balance between revenue generation and taxpayer affordability, other policy measures are often more efficient. Reducing tax rates when property values rise rapidly and incorporating property tax circuit breakers would help stabilize this balance and protect homeowners. States could also benefit from adopting Truth in Taxation policies.”
The Policy Download serves as a point of reference for policymakers and other stakeholders, clarifying the complexities of tax policy. It does so by providing empirical insights from states such as Florida, Virginia, and Georgia, analyzing how their tax systems influence the relationship between property values and property taxes. To further enhance understanding, it defines key concepts, including budget-driven and rate-driven property tax systems, mill rate structures, and offsetting mechanisms.
When Property Values Rise, Do Property Taxes Rise Too? builds on Langley’s previous work, Property Tax Relief for Homeowners, coauthored with Joan Youngman, executive director of Land and Fiscal Systems at the Lincoln Institute. In addition, a related working paper, Property Taxes and the Great Recession: The Role of Property Tax Limits, by Thomas Brosy and Chiara Ferrero was published last month.
The full report is available for download on the Lincoln Institute of Land Policy website.
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