Higher property taxes could further erode housing affordability

Taxes are just now beginning to catch up with soaring home values.

In normal times, as a home appreciates in value, its property taxes follow in short order. But these are not normal times: Given the breakneck speed with which the housing market has taken off the last few years, property tax increases could hardly keep up – until now.

In 2023, the small reprieve of relatively lower effective property tax rates will end and could yield a measure of sticker shock – especially for recent homebuyers. Researchers at Today’s Homeowner analyzed housing data across 585 cities spread across the country to track the corresponding rise in property taxes as it relates to skyrocketing home values – soaring valuations spurred by the lack of available houses for sale.

The results don’t paint a pretty picture. According to the findings, the average property tax bill increased by more than 19% over the last five years -- $2,340 to $2,795. Average property tax bills rose the most in Western states, including Colorado (40.2%), Utah (34.7%) and Washington (33.2%), according to the report. Although property tax bills rose in nearly 97% of cities, the study showed effective property tax rates increased in only about 17% of the cities studied.

Mortgage Professional America reached out to Hailey Neff of Today’s Homeowner for additional insight. In many parts of the country, those corrected property tax rates have already taken effect, Neff said. She noted researchers arrived at an effective property tax rate by taking the average property tax bill – how much the typical homeowner is paying every year on property taxes and dividing it by the median home sales in each stat. “It’s really the best way for us to compare different cities and states,” she said. 

Colorado has the nation’s highest property tax rates

Bolstered property taxes are especially pronounced in western states, she noted. “We noticed that average property tax bills rose the most in western states, including Colorado, Utah and Washington,” she said. “People in Colorado are paying 40% more in their property taxes than they did in 2016, which is a huge jump. Housing prices in these western states are going through the roof, and, as home prices go up, you’ve got to pay more property taxes on them.”

Other than protesting assessed values to the county tax assessor, Neff said, legislation is seen as the only viable option to help mitigate the hikes. “There’s lots of legislation going on right now,” she said. “I live in Idaho, and in the past legislative session there was a lot of talk about lowering property tax rates. Texas is doing the same.”

Texas proposes a $12 billion property tax relief package

Indeed, in the Lone Star state, property taxes are the seventh-highest in the US, according to smartasset.com. The average effective property rate in Texas is 1.60% compared to the national average of 0.09%, according to the site. The typical Texas homeowner pays $3,797 annually in property taxes, according to the site’s property tax calculator. On Thursday, the Texas House passed a $12 billion property tax relief package now headed to the Senate toward final passage, as reported by the Texas Tribune. An owner of a $350,000 home would realize more than $1,000 in savings over the course of two years under the relief bill, the news site reported.

“There seems to be a lot of buzz about what to do about property taxes,” Neff said. “We want home values to stay high, but we also want people to be able to afford them, and property taxes can really make or break affordability for a lot of people.”
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According to the study, all 50 states reported an increase in taxes paid, but the change in average property tax bills varied significantly. The top three states with the biggest increase in property taxes were:

• Colorado: 40.2%
• Georgia: 35.8%
• Utah: 34.7%

In Colorado, according to the study, the average property tax bill soared to $2,259 from $1,611. Georgia’s average property tax payout increased from $1,493 to $2,027 and in Utah it spiked from $1,627 to $2,191.

The report found that the top three cities that saw the largest increase in property taxes paid are all in Florida:

• Fort Myers: 73.0%
• Town ‘n’ Country: 67.5%
• Melbourne: 64.0%

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Despite the large increases for all three metros, the report found, only Fort Myers saw a significant increase in property tax rates (+0.13%) from 2016 to 2021. Melbourne saw a slight tax rate increase of 0.06%.
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Aside from Florida, the top 10 cities that saw the largest increase in property tax bills were located in Texas, California, and Colorado — three states that saw significant increases in home values over the same period as detailed in the report.