Housing boom spells property tax gloom

Fueled by rocketing home values, U.S. property taxes have risen almost 37 percent over the past five years. In 2004 alone, property tax collections rose 7 percent nationwide to more than $324 billion. With property taxes rising faster than income in much of the country, some homeowners are struggling to pay, and many local governments are trying to provide relief.

In Montgomery County, Md., the latest property reassessment, which occurs every three years, increased values by 70 percent. And while the county caps the increase that homeowners are responsible for at 10 percent, the expense still proved too much for many residents. Amid cries for help, the county lowered the millage rate — or the rate per $1,000 of assessed value — by 4.2 cents and added a $116 property tax credit. According to County Executive Douglas Duncan, the county’s fiscal year 2006 budget includes $85 million in cuts and credits. Despite that, Montgomery County’s revenues are up 7 percent, largely because of an increase in income tax collections and in taxes on property transfers and recording deeds.

Residents also may be eligible for the county’s Homeowners Property Tax Credit Program, designed to further reduce taxes for those with limited or fixed incomes.

In August, the Honolulu City Council approved a similar break. City figures show the total assessed value of Hawaii residences jumped 26 percent from 2004 to 2005. Under the new law, homeowners earning $50,000 a year or less would not pay more than 4 percent of their income in property taxes beginning in 2007. “Many people, and especially our seniors on fixed incomes, are being taxed out of their homes,” said City Council Budget Chairwoman Ann Kobayashi during council discussions.

Also in August, Michigan’s State House Commerce Committee approved a set of bills that would allow Detroit and other communities to cut property taxes. For 2005, Detroit homeowners are being taxed at a rate of about 67 mills, one of the highest rates in the state, according to the state treasurer’s office. That means that a resident who purchases a $200,000 home must pay $6,700 in property taxes. Calling the cuts an “absolute must,” Detroit Mayor Kwame Kilpatrick told the committee that tax relief is needed to curb population flight and encourage investment and growth in the city.

The bills would allow Detroit to lower taxes in 45 neighborhoods over three years. They also would reduce taxes for existing homeowners, as well as buyers in designated zones, for up to 15 years. The legislation would lower the tax rate for some Detroit homeowners to 52 mills.

While the cuts would cost Detroit nearly $10 million in revenue, according to the nonpartisan House Fiscal Agency, the mayor said in his testimony that it could help residents stay in established middle-class Detroit neighborhoods and relieve the burden on those who pay uncapped property tax rates when moving into the city. Kilpatrick told lawmakers last month that high taxes have helped shrink the city’s population to just more than 900,000, compared to 1.2 million in 1980.
— Nikki Swartz is a Kansas City, Mo.-based freelance writer.

National average single-family house purchase price

Oct. 2000: $200,800

Oct. 2001: $219,600

Oct. 2002: $235,717

Oct. 2003: $243,756

Oct. 2004: $264,540

SOURCE: Washington-based Federal Housing Finance Board