Property taxes are one of the largest sources of revenue for local governments. It’s annoying to get your tax bill every year and see it creeping up (rarely does it dip), but even more annoying when your property is reassessed and it jumps significantly. On a personal level, my property tax bill increased by about 30% after last year’s reassessment. In nearly 20 years of owning a home, I had never seen that sort of jump. Here are just a few reasons why property taxes have gone up recently:
Rising Property Values
One of the primary drivers of increasing property taxes is the rise in property values. As the real estate market experiences growth, the assessed values of homes and properties also increase. Local governments base property tax assessments on these values. When property prices rise, so do the taxes. In many areas, real estate markets have seen significant appreciation due to limited housing supply (lots of people hanging on to low interest rate mortgages), and high demand from those who need to move.
This upward trend in property values benefits homeowners by increasing their equity but also results in higher tax liabilities. For instance, if a property’s value increases from $200,000 to $300,000, and the tax rate remains constant, the property tax bill will rise proportionally. This is particularly pronounced in rapidly growing urban and suburban areas where housing markets are highly competitive.
Increased Demand for Public Services
Another factor contributing to rising property taxes is the growing demand for public services. As communities expand and populations increase, local governments face greater pressure to provide services such as education, public safety, transportation, and social services. To meet these needs, local governments often need to increase their budgets, which can result in higher property taxes.
Education, in particular, is a significant driver of property tax increases. School districts rely heavily on property tax revenue to fund operations, including teacher salaries, facility maintenance, and educational programs. As student populations grow and educational standards rise, the need for increased funding becomes more pressing. Consequently, property taxes often increase to support these vital services.
Budgetary Constraints and Fiscal Policies
Local governments also face budgetary constraints and fiscal policies that can lead to higher property taxes. In some cases, state and federal funding for local programs and services has not kept pace with growing needs, leaving local governments to fill the gap through property tax revenue. Additionally, unfunded mandates—requirements imposed by higher levels of government without corresponding funding—can strain local budgets and necessitate higher taxes.
Fiscal policies, such as tax caps and limits on other forms of revenue generation, can also impact property taxes. For example, if a state imposes limits on sales taxes or income taxes, local governments may rely more heavily on property taxes to meet their budgetary needs. This reliance can lead to higher property tax rates and increased assessments.
Inflation and Operational Costs
Inflation and rising operational costs contribute to the need for higher property taxes. The cost of providing public services, maintaining infrastructure, and paying public employees increases over time due to inflation. Local governments must adjust their budgets to account for these rising costs, which often means increasing property tax rates.
Everything from the cost of road maintenance to healthcare for public employees tends to rise with inflation. To maintain the same level of service, local governments need more revenue, which they often obtain through higher property taxes.
Assessments
In some cases, property assessments can lead to higher taxes for certain homeowners. Assessment practices vary widely, and inconsistencies or errors can result in unfairly high property valuations. You should be aware of your right to appeal assessments if you believe your property has been overvalued.
Reassessment processes can also lead to significant tax increases. When properties are reassessed, their values are updated to reflect current market conditions. If a reassessment occurs after a period of significant market growth, property owners may experience a sharp increase in their tax bills.
Bottom Line
Taxes are primarily rising because of increased property values, resulting in a passive increase, and because of increased spending, resulting in an active increase. Rising property taxes are frustrating to homeowners because you rarely see much in the way of increased benefits from the extra money you’re paying. Most, if not all of it, goes toward maintaining the spending the taxing bodies already have on the books. Tax rates vary quite a bit depending on where you live, Hawaii usually has the best property tax rate at around .3% while New Jersey homes, on average are taxed at about 2.45%. It can vary even further when you add in additional taxing bodies on a county/township level.