July 13, 2020

Unpacking Racial Disparities in Property Taxes

Housing advocates know that racial inequities in housing markets are common, with disparities in mortgage lending, realtor steering, rental application acceptance rates, and house value appreciation all regularly observed and documented. Less well known, however, are disparities in relative property tax assessments, despite widespread historical evidence of higher effective taxes paid by owners of color relative to white owners. 

New Research Shines Light on Tax Disparities

A recent article in the Washington Post highlights new research on racial disparities in effective property tax assessments. The referenced study by Carlos Avenancio-León and Troup Howard looked at tax payments on 118 million homes across 75,000 taxing entities, and found that Black and Hispanic property owners have a 10-13% higher tax burden relative to white owners, even when tax rates and jurisdictions are held constant – in effect, showing that households of color are paying more relative to their housing value as compared to their white neighbors. 

The study identifies two causes for this disparity; first, the assessed values on which property taxes are based do not adequately account for differences in neighborhood characteristics and amenities. The effect is widespread under-assessment of properties in mostly white neighborhoods and over-assessment of those in neighborhoods of color, relative to their potential market price. As such, a house in a community of color will have a higher effective tax rate (as a share of its market price) than a house with the same assessed value in a mostly white community.

The second cause relates to the role of individual owners in influencing the assessed values of their home by applying for an abatement or revision of their property assessment. Using a sample of property records from Cook County, IL, the authors find white owners are more likely to request an abatement, to receive a reduction in their assessed value, and to be granted a greater reduction in tax payment than Black and Hispanic owners.  Thus, not only is the assessed value of a home in a community of color higher relative to its market price, it is also likely higher than that of an identical white-owned home in the same jurisdiction.

A Legacy of Systemic Racism

As with most racial disparities, these findings are deeply rooted in the racist housing policies of the past, which allowed property assessments to be used to discriminate against Black landowners. Even as far back as the late-19th century post-emancipation era, assessors would routinely overinflate values on Black-owned properties relative to white-owned properties, to price the former out of their homes and opportunities for wealth building.  

In the decades after, tax assessments were sometimes wielded as weapons by whites to punish Black owners who participated in demonstrations or boycotts, or even for simply seeking economic and social mobility through homeownership. Assessors have also been slow to adjust tax assessments in Black communities, leaving values high even as market prices declined. As historian Andrew Kahrl says of these practices, “The pillaging of the poor through subtle and not-so-subtle forms of taxation… has been, throughout the twentieth century, a driving force in the production of inequality (in particular, racial inequality), and one of the more revealing indicators of the high costs of being black in America.”

The effects of these racist practices persist today for people of color, in lower homeownership rates, reduced wealth accumulation and intergenerational transfers, restricted access to neighborhoods with high-quality schools and other amenities, and fewer opportunities for economic mobility. Continued inequities in tax assessments, meanwhile, contribute not only to higher tax burdens but also higher risks of tax foreclosure and displacement due to unaffordable housing costs for Black and Hispanic homeowners. 

Inequities in Use of Tax Revenues Bring Further Harm to Communities of Color 

Racial inequities in property tax assessments are more than just outcomes of discrimination and bias in the housing system; they also contribute to disparities in public services that are funded through these tax payments. Property taxes account for nearly one-third of local revenues and are vital to the provision of public education, public safety, and other local government functions. Indeed, the local funding process for education was originally built on the premise that money going to Black schools would not be paid by white residents. 

Yet distributions of tax revenues are routinely inequitable with respect to race and ethnicity, as communities of color receive less value from these services relative to their contributions to the public budget. This compounded effect of overpayment of property taxes and under provision of public services in communities of color exacerbates the impacts of de facto residential segregation that continues today. 

This reliance on the property tax to fund public services is a key factor in its staying power, as few alternative revenue sources are as stable and accessible to local governments. Yet the process for assessing properties and allocating revenues is often not transparent and open to all residents. Each taxing entity has its own policies for setting and adjusting assessed values, with subjective judgments about neighborhoods and property types factoring into the estimates of taxable values on residential properties. Jurisdictions also rely on individual owners to engage with their taxing entities and appeal assessments deemed inaccurate – a process that, as the above research finds, greatly favors white property owners with the knowledge and resources to seek adjustments in their favor.

Seeking Equity from the Property Tax System

Increasing racial equity in our communities requires addressing systemic racism in housing, including in the assessment, taxing, and funding of public services through residential properties. Many solutions to reducing the gap in tax burdens have been proposed. Indeed, Avenancio-León and Howard offer one option to better align tax assessments with neighborhood conditions through use of zip-code based adjustment factors based on recent sales prices of properties across neighborhoods, which they estimate would reduce the disparities they observed by 55-70 percent.

While such a remedy might equalize tax burdens by race and ethnicity, it would not address the bias inherent in taxing a subjectively-valued asset, without regard to an individual homeowner’s capacity to pay. Nor would it address the disparities in access to quality public services created by an overreliance on property taxes to fund these services. Advocates for policy changes in property tax assessments would do well to consider a more holistic approach that decouples the value of residential property from the provision of public services and seeks more equitable funding models.

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