“When housing prices increase rapidly, as they have done recently in the US, homeowners are often concerned that property taxes will increase as well,” according to a fascinating new paper from the Lincoln Institute of Land Policy. “But the relationship between property values and property taxes is more nuanced than that.”

According to this new report, it’s frequently the case that property tax bills don’t keep pace with the escalation in housing prices, because local governments often reduce property tax rates in order to avoid the tax spikes that can result in massive resident pushback. As the report explains, “Most homeowners have watched their home’s value rise faster than their income.  So, without an appropriate policy response, property tax burdens could rise sharply -- a particularly serious problem for lower-income homeowners and seniors on fixed incomes. In extreme cases, sharp increases in property taxes can raise the risk of property tax delinquency and tax foreclosure.”

In practice, the degree to which increases in property values tend to push up taxes varies wildly from state to state. As the report explains, “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 states in which property taxes tend to rise most closely in tandem with increases in assessed valuations include Nevada, Wyoming, California, New Mexico, Michigan, Mississippi, Michigan and Alabama.

For example, according to the report, for California cities like San Francisco, “The state’s stringent assessment and rate limits create a highly rate-driven property tax system—local governments have little ability to adjust tax rates in response to changes in assessed values.”  Little wonder that, according to the Tax Foundation, San Francisco’s skyrocketing housing prices have meant that its property taxes are significantly larger than in other portions of the state.

It might seem as though state-driven property tax limits which retain some semblance of affordable housing, may be a clearly positive approach, but, as the reports ‘s co-author, Thomas Brosy, a senior research associate at the Urban-Brookings Tax Policy Center, explains, “they can weaken local fiscal autonomy and create significant inequities among homeowners.”

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