If you are a homeowner, or a would-be buyer, take heed: Your property taxes could be going up.
They may not increase this year, or even next year. But thanks to the unusually large jump in housing prices over the last 12 months, plus a major shortfall in state and county revenue from other sources, your property taxes will increase by 2023.
According to The Warren Group, publisher of The Registry Review, the state’s median single-family sale price closed out 2020 at the highest annual gain – 12 percent – in years. And Zillow predicts prices the nation’s prices will continue to trend upward, rising a whopping 10.5 percent in 2021.
That’s good news for sellers, but not so great for owners who aren’t interested in selling – or for buyers basing their purchase decisions, at least in part, on a house’s property taxes. Even sellers who move on to another house will eventually have to pay the piper.
There’s no telling how high the tariffs may go; that depends on the tax rates of your particular jurisdiction. But as sure as I’m sitting here typing this, they will probably go up.
Budgets Run on Property Taxes
State and local governments derive about half of their revenue from taxes, with the reliance being particularly strong in states like New Hampshire that lack an income tax. Revenues tend to fluctuate with economic conditions – and boy, have those changed over the last year.
Taxable sales are down, as are incomes, as are the values of large swaths of income-producing property. With the exception of industrial real estate and some apartment projects, commercial real estate is scraping bottom. While the hotel and retail sectors have taken the brunt of the virus-induced recession, office space is also sitting empty because many people are still working from home. And malls are shutting down because we’re doing the lion’s share of our shopping online.
Many states saw a free-fall in revenues in the second quarter of 2020, according to the latest figures from the Census Bureau. And as result, “most ended the 2020 fiscal year uncertain about their fiscal bottom line,” said Lucy Dadayan, a senior research associate at the Urban Institute.
Although vaccines have arrived, Dadayan thinks it will “take a long time” for business activity to return to pre-pandemic levels.
In Massachusetts, Gov. Charlie Baker has drawn on the state’s rainy-day fund to balance the next budget and proposed legalizing betting on professional sports, estimating it could generate $35 million in new revenue.
Not Everywhere, Not Right Away
Meanwhile, local jurisdictions are almost assuredly going to be forced to lower the value of a good part of their tax bases, leaving housing to make up the shortfall. And with housing values rising practically everywhere, homeowners are going to be easy prey for their local tax assessors.
Not everywhere, of course: Some states have property tax caps to prevent local governments from making too dramatic an increase.
And not everyone thinks levies are about to rise, but it’s the prevailing view among industry experts. David Logan, the director of tax analysis at the National Association of Home Builders, figures he’ll receive word soon from his own lender about his property taxes going up – and said other homeowners should brace for the same.
Maybe not right away: Most jurisdictions reassess properties within their borders on two- or three-year cycles.
Either way, Logan said local governments “are likely to seek ways to raise taxes on many types of properties to fill their budget holes.”
There are other ways to boost revenue that don’t involve property taxes, of course. But when localities search for a stable income source, what’s more stable than housing? And is there any other group besides homeowners with no lobby fighting on their behalf? Even if your assessment falls for some reason, your tax rate, also known as “millage,” could go up and you’d still end up paying more.
Home Improvements an Influence
Minneapolis realty broker Kris Lindahl sees the handwriting on the wall, too. He points out that if your neighbors down the street sold their place during this current housing up-cycle, the value of your house is going to change – more likely up than down.
“If homes in your neighborhood are selling for above asking price, your tax bill may increase,” Lindahl told me in an email.
Many people stuck at home for months have made improvements to their places – upgrading a kitchen, perhaps, or finishing a basement. That, too, can impact property taxes.
“We’ve seen a lot of homeowners invest in home improvements during the pandemic,” said Lindahl. “Some of those home improvements will definitely increase the assessed value of the home, which will increase the property tax bill.”
One upshot of all this is that some owners may decide to flee to areas, like New Hampshire where property taxes are lower, as the libertarian-leaning Pioneer Institute has warned.
The Associated Press contributed reporting.
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at firstname.lastname@example.org.