Why are Residential Property Tax Rates Regressive?

Abstract

Among single family homes that enjoy the same set of property tax-funded amenities and pay the same statutory property tax rate, owners of cheap houses pay 50% higher effective tax rates than owners of expensive houses. This pattern appears throughout the United States and is caused by systematic assessment regressivity -- cheap houses are overappraised relative to expensive houses. At least 30% of the observed regressivity can be explained by tax assessors' flawed valuation methods, which ignore variation in priced house and neighborhood characteristics. Infrequent reappraisal explains less than 10% of the phenomenon. Heterogeneous appeal behavior and outcomes do not contribute. Overtaxation of minorities and low-income households is a by-product of assessment regressivity because these households sort into cheap houses. Within the same local house price decile, black households are proportionately taxed, while Hispanic and low-income households are undertaxed. Taken at face value, correcting assessment regressivity would increase poor homeowners' net worth by more than 15%.