The property tax has great potential as a source of local government revenue in Asia, but its implementation has been uneven. The Lincoln Institute’s new book Property Tax in Asia: Policy and Practice provides the first comprehensive analysis of how this essential fiscal instrument has performed throughout the world’s largest continent. 

Written by a team of leading experts and edited by William McCluskey, Roy Bahl, and Riël Franzsen, the book provides a comparative analysis and detailed recommendations, with 13 in-depth case studies covering a region that is home to nearly half the world’s population. 

“Our case studies of these 13 countries and regions found that methods to modernize the property tax vary widely among them, including how they capture its advantage as a revenue-raising measure and make it an instrument for rationalizing land use policy and promoting social equity,” the editors write. 

A resource for scholars and policy makers alike, the book provides the most thorough review to date of the laws, administrative practices, reform proposals, technologies, and political debates that shape the property tax across countries of all sizes and income levels.  

The book finds that, in general, wealthier countries such as Japan, Korea, and Singapore have well-functioning property tax systems, although they face challenges—for example, unclear ownership of Japan’s growing number of abandoned homes. In China and Vietnam, which do not allow private ownership of land, local governments rely heavily on one-time land-use fees, which are less reliable and stable than recurrent taxes. In addition, many lower-income countries suffer from narrow tax bases, undervaluation of property, poor compliance, and political challenges. 

To represent roughly 50 countries, the editors selected 13 cases in based on the use of the property tax, innovative administration, use of technology, and history with the property tax. The case studies include all the largest economies in South and East Asia, all jurisdictions with recurrent property taxes of at least 1 percent of GDP, and a range of lower-income countries throughout Asia. The cases include China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Pakistan, the Philippines, Singapore, Taiwan, Thailand, and Vietnam. 

Acknowledging that conditions vary widely, the book recommends the following 10 directions for reform: 

• Develop a property and land tax strategy 
• Take a comprehensive approach to reform 
• Clarify the different roles of national, provincial, and local government 
• Eliminate unnecessary tax exemptions 
• Simplify the tax rate structure 
• Rationalize the use of property transfer taxes 
• Improve the quality of valuations and compliance with statutory revaluation cycles 
• Improve voluntary compliance with the property tax 
• Simplify and improve public management 
• Harness the power of information technology 

Property Tax in Asia: Policy and Practice is the latest in a series of Lincoln Institute books analyzing the property tax in large regions of the globe, including Property Tax in Africa: Status, Challenges, and Prospects (2017) and Property Tax Systems in Latin America and the Caribbean (published in Spanish, 2016). 

Image: View of Mt. Fuji, Tokyo Tower and crowded buildings in downtown Tokyo. Credit: yongyuan via Getty Images.

In San Diego, the owner of a newly purchased, median-priced home paid more than $9,000 in property taxes last year, about $3,400 more than somebody who has owned an identical home for 14 years, the average duration of home ownership in the city, according to a new study from the Lincoln Institute of Land Policy and the Minnesota Center for Fiscal Excellence.  

A result of the assessment limit contained in California’s Proposition 13, the disparity in tax bills for new and longtime homeowners in San Diego grew by $600 last year alone as property values increased, and it has grown by more than $2,000 in five years, according to the 50-State Property Tax Comparison Study.  

Assessment limits restrict the growth in the assessed value of a home for tax purposes, usually allowing a property to be assessed at its full market value only after it is sold. Over time, as the value of a home increases, its owner receives an increasingly large tax break. New and recent homebuyers make up for these tax breaks by paying higher bills. San Diego is one of 29 large cities with assessment limits analyzed in the study. In these cities, longtime homeowners receive an average tax break worth $1,600, a 30 percent discount compared with tax bills of new homeowners. 

Produced annually, the 50-State Property Tax Comparison Study provides the nation’s most comprehensive analysis of local property tax rates by calculating the effective tax rate—the tax paid as a percentage of market value—for 74 large U.S. cities and a rural municipality in each state. The study considers property tax exemptions, credits, the accuracy of assessments, and other factors to provide meaningful comparisons of tax rates and bills for residential, commercial, and industrial property. It also analyzes the key factors that drive differences in tax rates among cities. 
 
One of the main drivers of variation in tax rates is the extent to which each city relies on the property tax. In Bridgeport, Connecticut, for example, residents pay one of the highest effective property tax rates on a median-valued home, but they pay no local sales or income taxes. Birmingham, Alabama, by contrast, has some of the lowest effective property tax rates, but its residents pay significantly more in total local taxes than Bridgeport’s—$3,201, per capita, compared to $2,221 in Bridgeport—because Birmingham also relies on local sales and income taxes. 
 
A second major driver of variation in tax rates is the difference in property values in different markets. Cities with high property values can collect the same revenue with a lower rate than cities with low property values. For example, to collect $3,424—the average amount collected for a median-valued home in the study—the effective property tax rate would need to be 20 times higher in Detroit, which has the lowest home values in the study, than in San Francisco, which has the highest home values.  

Other factors in the variation of property tax rates include differing levels of local government spending, and differences in how various classes of property, such as residential, commercial, and industrial, are treated relative to each other. 
 
The study found that among the largest cities in each state, the average effective tax rate on a newly purchased, median-valued home was 1.3 percent in 2021, with wide variation across cities. Three cities had effective tax rates that were at least double the national average, and eight had rates that were less than half the average.

Highest and Lowest Effective Property Tax Rates on a Newly Purchased Median-Valued Home (2021) 

The study also finds significant variation in effective tax rates for commercial property such as office buildings. In 2021, the average tax rate on a $1 million building was 1.9 percent in the largest city in each state. Detroit and Chicago had the highest rates, at more than double the national average, and Cheyenne, Wyoming, and Seattle had the lowest rates, at less than half the national average. 

Highest and Lowest Effective Property Tax Rates on $1-Million Commercial Property (2021) 

The report is available for download on the Lincoln Institute website: https://www.lincolninst.edu/publications/other/50-state-property-tax-comparison-study-2021

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

Image: La Jolla Coast Aerial. Credit: Art Wager via GettyImages.