- A study found houses in lower-income neighborhoods in the US are taxed more than those in rich ones.
- In Chicago, more costly homes were effectively taxed at around 1.5% while cheaper homes were taxed at around 4%.
- In largely Black neighborhoods, homeowners are taxed around 50% more than in nearby neighborhoods.
- See more stories on Insider’s business page.
A new study found that if you own a house in a lower-income neighborhood in the US, you’re typically being effectively taxed around twice as much as a homeowner in a wealthier nearby neighborhood.
The study, conducted by researcher Christopher Berry and The University of Chicago Harris School of Public Policy and first reported by The Washington Post, analyzed a trove of data from the tax and deed database company Corelogic. Berry studied the records from “individual property sales, including addresses, sale prices, and assessed values” from 2006 through 2016. The data covered 2,600 counties that contain 99% of the US population, according to the study.
While the property tax rate you pay as a homeowner should be the same in principle as others in your county, regardless of the sale price of your home, the research concluded that in reality this is not the case.
In Chicago, for example, the study found that the most expensive homes in Chicago, those priced at more than $500,000, were taxed at an effective rate of around 1.5% or less, while those sold for less than $100,000 saw and effective tax rate of around 4%. Similar discrepancies were noted in cities including Detroit, New York, and New Orleans.
“This pattern jumps out from the data, so it didn’t take me long to see once I had the data,” Berry told Insider. “I think the issue is that not many people are looking at these data.”
“Even experts on the property tax often overlook the issue of assessment quality,” Berry added. “Meanwhile, assessors, who really should be looking at these issues, have developed a set of standards and practices that tend to sweep the problem under the rug.”
So, how does a city go about setting the property tax anyway?
“The property tax is, in principle, an ad valorem tax, meaning a tax proportional to the property’s value,” Berry explained in his research. “Unlike a sales tax or a value-added tax, the property tax is not levied at the time of a transaction, but at regular intervals, usually annually.”
“Because most properties sell infrequently, their value in any given tax cycle must be estimated, a job that falls to the office of the local assessor,” Berry added. “The accuracy and fairness of the property tax depends fundamentally on the accuracy and fairness of the valuations estimated by assessors.”
While homeowners can appeal the city’s assessment of their house, the study notes that appeals are disproportionately pursued by those who own expensive property, which could contribute further to the problem.
“Since no way of measuring regressivity is perfect, they have essentially thrown up their hands and said, maybe it’s just measurement error,” Berry told Insider. “But the truth is that the magnitude of regressivity is much too big to be the result of measurement error.”
Berry found that in predominantly Black neighborhoods, homeowners faced an effective property tax around 50% higher than homeowners in nearby neighborhoods located within the same county.
Accurate and fair tax assessments are vital to buyers who are trying to build wealth.