Property Taxes and Equity

The following is a summary of work in progress from the Center for Municipal Finance. The full paper and additional research are available on a dedicated Property Tax Fairness Portal, accessible at www.propertytaxproject.uchicago.edu.

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Property taxes represent the single largest source of own-source revenue for America’s local governments. Cities, counties, school districts, and special districts raise roughly $500 billion per year in property taxes, accounting for 72% of local taxes and 47% of locally raised revenue. Whether residents rent or own, property taxes impact everyone. 

In many cities, however, property taxes are also inequitable: low-value properties face higher tax assessments, relative to their actual market values, than do high-value properties. This particular form of inequity is known as regressivity.

In the first nationwide study of assessment regressivity, the Center for Municipal Finance has reviewed property tax records of communities accounting for 96% of the population nationwide. Utilizing property records provided by CoreLogic, a national provider of real estate data, the Center evaluated the sales and tax histories of nearly 40 million properties that sold between 2007 and 2017. 

For each residential sale, the Center compared the property’s sale price with the value estimated by the local taxing authority, its assessed value. This ratio of a property’s assessed value to its actual sale price is called a sales ratio. Our analysis shows that in nearly every community throughout the country, lower-priced homes face higher sales ratios than do higher-priced homes. The result is that owners of low-priced homes pay too much in taxes while owners of high-priced homes pay too little.

There are many ways to measure assessment regressivity. For this summary, we report one of the simplest metrics: the 10/90 ratio. We define the 10/90 ratio as the average sales ratio for the bottom 10 percent of properties divided by the average sales ratio for the top 10 percent of properties. A 10/90 ratio above 1 indicates regressive assessments while a 10/90 ratio below 1 would indicate progressive assessments. For example, suppose that the least expensive 10 percent of properties receive average assessments equal to 120 percent of their value. In the same jurisdiction, the average assessed value among the most expensive 10 percent of properties was equal to only 80 percent of their sale price. The 10/90 ratio for this jurisdiction would be 120/80 = 1.5, meaning that the average low-priced home is assessed at 150% of the rate applied to the average high-priced home.

To compare across various communities with widely divergent property values, the Center computed the “10/90” ratio for almost every county in the US. The average 10/90 ratio nationwide is 133%, meaning that the least expensive 10% of homes in America were assessed at a rate 133% of the assessment rate applied to the most expensive 10% of homes. We found that 97.7% of counties had regressive assessments (10/90 ratio above 1) and nearly half had very regressive assessments (10/90 ratio above 1.5), meaning that the lowest priced homes were assessed by 50% more than the highest prices homes, relative to true sale price. Figure 1 shows a map of regressivity across counties.

Figure 1: Average Assessment Regressivity by County (2017)

Uniform/ Not Regressive (Green) – Most Regressive (Dark Red)

We have also studied trends in assessment regressivity over time, as shown in Figure 2. While assessment regressivity was present every year between 2007 and 2017, the problem worsened considerably during the Great Recession but has been steadily improving since. This finding is especially worrisome in light of the current COVID-19 pandemic, raising the concern that regressivity will again worsen in a new recession.

Figure 2: Average 10/90 Ratio Across All Counties 2007 - 2017

In a forthcoming paper, the Center will detail its findings, providing both an analysis of property tax equity at a national level, as well as highlighting particular systems in a dozen of America’s largest metro jurisdictions. The Center will also be releasing a website dedicated to this research, which will allow visitors to view reports for their community, based on our analyses. This site will also allow individuals and governments alike to download the Center’s original program code and use it to evaluate their own data. 

For additional information regarding this research contact: munifinance@uchicago.edu.