When Property Values Rise, Do Property Taxes Rise Too?

This policy download examines the relationship between changes in property values and property taxes. When housing prices increase rapidly, as they have done recently in the US, homeowners are often concerned that property taxes will increase as well. But the relationship between property values and property taxes is more nuanced than that. It varies widely across states, depending on the kind of property tax institutions in the state, especially the design of property tax limits, and the actions local officials take in response to changes in housing prices. In some states, changes in assessed values have almost no impact on property tax bills, while in other states increases in assessed values lead to a nearly one-to-one increase in property taxes. Many states fall in between, with a 1% increase in property values leading to a 0.3% to 0.5% increase in property taxes.

To ensure that spikes in housing prices do not lead to rapid growth in property tax bills, states should adopt Truth in Taxation and property tax circuit breakers, but avoid property tax limits that undermine local fiscal autonomy. Local governments should reduce property tax rates when values rise rapidly.