A new geographic analysis of homes across the U.S. shows Black and Hispanic property owners pay 10% to 13% more in property taxes than their white peers in the same tax jurisdiction.
A new geographic analysis of homes across the U.S. shows Black and Hispanic property owners pay 10% to 13% more in property taxes than their white peers in the same tax jurisdiction.
Adding to a wealth of prior research that demonstrates racial and ethnic disparities within housing markets, a recent spatial analysis study that encompasses most properties in the United States finds strong evidence of a widespread and large gap in the assessed value of properties based on their owner’s race.
While past research has demonstrated, among other things, racial discrimination in property appraisals that affect access to bank credit, the gaps identified in the new study document widespread racial inequalities in the U.S. property tax burden that result in racial and ethnic minorities paying different prices than their white peers for the same set of public goods.
Background on assessment values
As a homeowner in the United States, there are several different valuations that affect the financing and cost of your property. In determining whether to provide a potential homeowner with a loan, for example, a bank will send an appraiser to assess the property. Similarly, local government officials determine the “assessed value” of a property, which is the value that ultimately affects how much property tax a homeowner will pay.
While methodologies for determining assessed values vary nationwide, an assessed value typically takes into account several pieces of information including the property’s physical attributes, various features of the surrounding neighborhood, and other factors like nearby property values and established formulas related to local assessment rates.
For property taxes to be equitably distributed, the ratio of the assessed value of a property to its market value must be the same for all residents within a particular tax jurisdiction.
The additional tax burden on minority homeowners
While nearly every state has language in its constitution or legislative code carefully specifying that property taxation is intended to represent a proportional burden on the fair market value of the real property, the average assessment ratio for a Black resident in the authors’ sample was 12.7% higher than for a white resident in the same tax jurisdiction. For Black or Hispanic residents in aggregate, the average assessment gap was 9.8%.
The authors estimate an additional burden of $300–$390 per year for the median Black or Hispanic family, and up to $790 for families affected at the 90th percentile of the assessment gap. Given that the median Black household net worth is $13,000, of which only $4,000 is in liquid assets, this represents an extreme financial burden.
Why are local assessors overvaluing properties owned by minorities?
While the authors can’t rule out the possibility that the assessment gap exists because of racially biased assessors (while assessors in small cities might go door-to-door to assess properties, assessors in large cities don’t and it’s unlikely they would know the race of any given homeowner), they find strong evidence of two other factors that contribute to the racial gap in assessment values.
First, they find that local assessors often place less value on neighborhood attributes–for example neighborhood income–than market prices do. This leads to the under-assessment of property owned by the average white resident and the over-assessment of property owned by the average minority resident.
Second, the authors find Black property owners are 7% less likely to appeal an assessment and 3.3% less likely to win an appeal, conditional on applying. Results are similar when comparing Black and Hispanic property owners together.
What local authorities can do
To close these gaps, the authors contend, assessors must recognize that market prices are highly sensitive to local conditions in ways that correlate with race. Accordingly, assessed valuations should reflect price dynamics at a narrow geographical level.
The authors propose an alternate approach for constructing assessments based on small-geography home price indexes, and show that this reduces inequality by at least 55–70%.
About the authors at the University of Utah
Troup Howard is an Assistant Professor in the Finance Department at the David Eccles School of Business and the Marriner S. Eccles Institute for Economics and Quantitative Analysis at the University of Utah.