University of Massachusetts Dartmouth: Property Tax and Homeownership

This research paper by Ashley Terrill, submitted to the University of Massachusetts Dartmouth in Spring 2019, investigates the detrimental effects of property tax on homeownership in America. The paper delves into the functional workings of property tax legislation, highlighting the roles of various players like tax authorities, developers, and taxpayers. It explores the challenges of determining tax bases, fixing assessment systems, and stabilizing tax rates, especially within the context of municipal finance. The study examines how rising property values, government mandates, and state aid reductions contribute to increased property tax burdens. The author reviews literature, including residential property tax exemptions in Boston, and analyzes trends in property tax collections compared to national income. The paper also addresses how new tax collection processes and procedures exacerbate these issues, potentially leading to a decline in homeownership. The report uses statistical data from the provided assignment brief to explain the relationship between median home prices, median income, residential growth, property tax rates, and assessed value. The study concludes by discussing the impact of these factors on citizen services and the broader implications for homeownership in America.

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Property Tax Threatens the Longevity of Homeownership in America
Ashley Terrill
University of Massachusetts Dartmouth
Spring 2019: Statistical Analysis
April 25, 2019

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Introduction
In municipal finance, property tax is considered as the backbone. In a number of
developed countries, now property taxation faces some major implementation issues such as
distinguishing taxable properties, determining a suitable tax base, fixing up a proper assessment
system, and stabilizing accurate property tax rates (Brownlee, 2016). The purpose of this
research paper is to achieve deep understanding of the functional working of property tax
legislation. The study also highlights variables in the property tax context among different
players: the tax authority, the developers, the local authorities, the taxpayers, and the central/state
government.
Site value tax rates can only generate analogous revenues at very high rates of tax. This
implies that more revenue can be generated from site value task only if the rate of taxation is
high. This is a problem as bigger rates create higher distortions while estimating the amount of
revenues to be collected since higher rates will exaggerate the country’s GDP. As per political
perspectives, it is possible to levy a cheaper property tax rate on land/improvements than a
greater tax rate on the land portion only (Rose & Karran, 2018). The property tax was of 3.12
percent in the average of the national income in the year of 2004. The amount of property tax in
the 1970s was the same as the recent statistics. The average property tax was 3.5 percent in that
time. The property tax was above the average level in the year of 1980s only.

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In most advanced countries, the property tax performs a vital role in the local
government. In Australia, Canada, and the USA it is the principal root of Municipalities revenue
(Hornbeck & Keniston, 2017). Approximately half of the total federal revenues in Canada are
acquired from property taxes. Due to the wealth augmentation of these taxes, the local
government has continually increased these tax rates on per capita basis, from $ 864 dollar in
1988 to $ 1, 035 in 2007in Canada. This is the major problem towards the taxpayers as a
taxpayer will resist any increase particularly when they feel the addition is not sustained by an
extension in the provision of services. Usually, the value of the properties in the market will turn
in an irregular way. Oates & Fischel (2016) justified that the cost of the property is increasing
rapidly. The long-term trend is not observed from the recent trend of upwards in property tax
collection compared to income (Pogge & Mehta, 2016).
How new tax collection process and procedures do exaggerates the property tax changes
and their effect on citizen services and creating lengthy injustice, resulting in the fall of home
ownership in America? The policymakers of local government have not had the capacity to bring
down property rates as much as they may have wanted as property estimations rose and salaries
declined amid the financial downturn since they confronted underfunded orders from the national
government and diminished state help. For instance, the expense to states and regions of
underfunded government orders surpasses the aggregate sum of property charge increments in
the course of recent years. All out-property charge accumulations expanded by $67 billion from
2000 to 2004, while unfunded orders to state and nearby governments cost $73 billion from the
financial year 2002 through the monetary year 2005 (Wanless, 2018).

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Literature Review:
In Massachusetts, the evaluated estimation of a property is called an appraisal. The
property charge depends on the estimation of the property. This is now and again called
"advertisement valorem," a Latin expression that signifies to the value.
The City of Boston works under a property charge grouping framework. This enables
government to charge diverse rates for private and business property. The expense rate is the sum
a citizen owes for every one thousand dollars of property estimation in a given year. The duty
rate for a given financial year shows up on your second from last quarter charge, which is
ordinarily issued in late December.
According to residential Property Tax Exemption, the city of Boston offers a yearly
Residential Property charge exception to mortgage holders who use their property as their
essential habitation. This private exclusion lessens the expense bill by exempting a segment of
the property estimation from tax collection (per $1,000 in surveyed esteem). Last year, the
private exception spares qualified Boston mortgage holders up to $2,538.47 on their expense bill.
For Fiscal Year 2018, the residential property tax exemption requires the citizens of Boston to
adhere to the following requirements;
1. The citizen of Boston needs claimed and lived in their home as their own main
living place on January 1 proceeding the current monetary year. For instance, for
in any event the most recent year, the citizen need possessed and involved their
property as their main living place on January 1, 2017, to be qualified for
exclusion in the Fiscal Year 2018 (July 1, 2017, to June 30, 2018).

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2. The citizen can fit the bill for a private exclusion for one property. Kindly
recollect, on the off chance that the citizen documents a private exclusion
application that does not mean they can defer making well on their regularity
expenses.
3. The citizen can apply for different exceptions alongside private exclusion, yet the
exclusions do not gather. Rather just the most elevated exception is connected.
The assessable estimation of their property likewise cannot be beneath 10 percent
of the surveyed esteem. There are special cases for specific occupants with
physical afflictions or monetary hardship.
According to the long term reducing and the recurring character of Property Tax, it states
that there is no specific policy that associate low assessment rates with zero or negative
development; particularly in 2008 to the 2009 during time allotment (McCluskey et.al, 2017).
By examination, in the late 1970s, when Boston city confronted a rush of Proposition 13-
style charge revolts as justified by Davila et.al, (2016), property assessed surpassed 3.5 percent
above current dimensions. From 1960 to 2004, property charge accumulations arrived at the
midpoint of 3.29 percent of national pay, 5.6 percent higher than the 2004 dimension of 3.12
percent. Property charge accumulations today are underneath all periods with the exception of
the 1980s. From 2000 to 2004 property charge accumulations found the middle value of 3.06
percent of national pay, underneath the normal of the 1960s, 1970s, and 1990s, and marginally
over the 1980s normal of 2.94.

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Since mid-2000, when property charge accumulations as offer of national pay achieved a
15-year low of 2.88 percent of national pay, property charge accumulations have ascended to
3.06 percent at the trough of the subsidence (late 2001) and to a present dimension (late 2004) of
3.16 percent of national salary as the monetary emergency waits for an expansion of around 9
percent (Pomeranets & Weaver, 2018).
Property tax collection is low so its exemption can be done. If property tax was high then
that will show a high percentage of city education and public service. This is the major problem
towards the taxpayers as a taxpayer will admit any tax increase particularly when they feel the
addition is sustained by an extension in the provision of services. One reason that property tax
accumulations have risen as of late is that the basic estimations of private and business property
have risen. Accordingly, numerous nearby governments have had the capacity to acknowledge
expanded income from property charges without raising rates (Kane et.al, 2019).
High and rising property estimations in numerous pieces of the nation have kept property
charge accumulations moderately solid. From 1999 to 2003, the cost of the middle deal of a
current single-family home in the U.S. expanded 20 percent, while expansion balanced middle
family unit salary fell by 3.6 percent from 1999 to 2003. Falling pay with rising property
estimations can cause property tax collection as an offer of national pay to rise, even without any
rate changes.
Rate increments and it seem to have assumed a generally minor job in the rising
collection. Indeed, even as urban communities face expanded however underfunded requests,
most of the urban areas are not raising property charge rates. For instance, the National League
of Cities noted as of late that in spite of about 70 percent of urban communities revealing
expanded open security spending in 2004, just 25 percent of urban communities expanded

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property charge rates while 7 percent of urban areas diminished property tax rates in 2004. Most
of the urban areas left property tax rates unaltered in 2004 (Argall et.al, 2016).
A few commentators declare that state and nearby policymakers ought to react to
expanding property estimations by decreasing property tax rates more than they have, to
counterbalance the effect of expanded property tax evaluations on incomes (Chirico, et al.,
2016). Government spending plan and assessment activities have expanded the fiscal compulsion
on states and territories through an assortment of activities, including underfunding orders. From
the fiscal year 2002 through the year 2005, government arrangements have cost states and
regions more than $175 billion. For instance, from the fiscal year, 2002 through the year 2005
subsidizing for the No Child Left behind Act (NCLB) has been roughly $32 billion underneath
the dimensions approved in the Act. Numerous local governments have needed to create extra
assets to meet this federal necessity. Second example of unfounded mandate is to put the ongoing
ascent of property tax accumulations into viewpoint, the total expense of Federal orders from the
fiscal year 2002 to the year 2005 was more than the expansion in property tax collection from
2000 to 2004 (Fei et. al, 2016).
The Federal government has additionally constrained states and areas from raising
sufficient income through different kinds of expenses to pay for these increasing costs, which has
put upward force on the property tax. For instance, the Federal government has not enabled
states to gather deals impose on things bought on the Internet or through indexes. By not
enabling states to recover income lost through inventory and online buys, the Federal
government has kept the states and territories from gathering around $60 billion from the fiscal
year 2002 through the year 2005. The Federal government likewise has appropriated or made it

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troublesome for states to keep up other income sources, through enactment, for example, the
Internet Tax Freedom Act and the cancelation of the home duty.
Additionally, state spending activities have expanded financial weight on local
governments by diminishing state help for local governments, especially for instruction
subsidizing.
Between the fiscal year 2002 and year 2004, areas in 35 states (representing 75 percent of
absolute understudies) got a decreased measure of per student K-12 government-funded school
subsidizing from their states, after modification for swelling. In the request to keep up
subsidizing even with declining state commitments and expanding federal requests, a portion of
these local governments swung to more prominent dependence on property duties to create
revenues. Best case scenario, school regions were in no situation to bring down property tax rates
as wages stagnated or declined amid the downturn.
In an ongoing National League of Cities overview, 55 percent of reacting urban areas
announced that adjustments in state help negatively affected their fiscal 2004 spending plans.
From the fiscal year 2003 to the year 2004, 24 states detailed decreases in help to urban
communities, adding up to a $2.3 billion decay (9.2 percent) in state help. The need to adjust for
lost state help is as yet another reason property charge rates couldn't be decreased amid the fiscal
emergency (Kaplan, Mitman & Violante, 2015).
Property tax remains the absolute most noteworthy wellspring of income for most local
governments and in this manner a critical wellspring of financing for neighborhood
administrations like K-12 training, police, flame, and human administrations. In the voter

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activities event the policymakers or patrons go overboard to the ongoing fiscal changes in
property tax levels by embracing clearing property imposed.
There is some proof that voters are very much aware of the trade-off between unbending
property tax constraints and sufficient open administrations. For example, voters in Maine had
the alternative on the November poll to constrain property duties to one percent of evaluated
esteem and to confine increments later on. Confronting uncertainty of up to 40 percent in
metropolitan and school area incomes if Question 1 had passed, Boston voters chose not to help
an expense top that would have devastated financing for nearby administrations.
Notwithstanding harming open administrations, property charges make imbalances for
mortgage holders and may twist business improvement. A sweeping property charge cap that
consistently restricts the appraisal proportion, obliges future increments in property tax
obligation, and takes into consideration reassessment just when possession changes like the
arrangements of California's Proposition 13 will prompt correspondingly arranged mortgage
holders making good on regulatory obligation charges simply because they purchased their
homes at various occasions. For instance, the Santa Clara County Assessor Larry Stone as of late
represented the imbalances of Proposition 13 by indicating distinctive property charge bills for a
house whose proprietors paid $90,000 in 1975 and an indistinguishable model in a similar
neighborhood bought almost 30 years after the fact for $830,000. Property charges were $1,600
for the home bought in 1975 when contrasted with $8,300 for the home obtained in 2002.

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The people and families who have less income and high lodging expenses may confront
property that charges higher than they can afford, regardless of the way that property imposes
overall are at low dimensions historically. It is conceivable to give the facility of the tax relief to
the owners of the house who have lots of loan burden. Property charge change that considers a
mortgage holder's capacity to pay is likely to shield low-salary homeowners from rising property
assesses that go with rising property estimations. Directed property charge and targeting the
people with the genuine need to keep away from sharp decreases in financing for privately given
open administrations and imbalances dependent on the date of procurement (Pogge & Mehta,
2016).
Property charge circuit breakers do not decrease the neighborhood charge base, in this
manner taking into consideration to keep financing of nearby administrations, since they are state
subsidized. In the current situation, just six and the District of Columbia grant all family units to
take an interest in the program without respect to age out of the 31 states and the District of
Columbia with circuit breakers for homeowners (Guceri, 2016). States could improve property
holder electrical switch programs by extending qualification to all mortgage holders paying little
respect to age.
Additionally, there is sufficient number of other property charges that helps in procedures
that might be utilized to target property charge alleviation. These incorporate estate exclusions to
exclude a specific measure of a home's estimation from tax assessment, credits to refund a
specific level of tax paid, and deferral activities to permit low-salary older householders to
concede installment of property charges until the property is sold (Mishel, Bernstein & Schmitt,
2016).

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The law officials who decide the taxes revolts regularly sometimes express property
charge changes in dollars, to make it seem as though property charges are developing rapidly.
Communicated in ostensible dollars, property charges have expanded from $254.6 billion of
every 2000 to $321.5 billion out of 2004. That is a 26 percent expansion, or a yearly rate of
increment of 6.0 percent (Basu, 2016).
If this is seen in isolation, such increments are misdirecting. Property charges develop on
the grounds that the economy develops, making new structures be assembled and expanding the
benefit of existing structures. Financial development additionally prompts pay development.
Along these lines, it is undeniably progressively fitting to consider property charge levels as a
percent of salary. Estimating property charges in respect to pay both recognize that monetary
development suitably builds incomes and reflects, all things considered, the capacity of
individuals to make good on the government obligation.
As the economy improves and earnings again develop, property charge accumulations as
an offer of salary are probably going to settle or decay, as they have in different recoveries.
Given the other consequences of the outside are driving property taxes accumulations. Such caps
convey repercussions that expand well past the issue they indicate to address and ordinarily lead
to long haul imbalances in property charges paid by also arranged family units. Additionally,
such breaking points regularly lead to more noteworthy than anticipated or wanted decreases in
indispensable open administrations financed by property charges, for example, K-12 training,
police, and flame security.

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Alternative strategies, for the property, which is alleviated, taxation rates could
incorporate expanded state help to regions and focused on duty alleviation for low-pay families
most loaded by property charges (McCluskey et.al, 2017). Basically, property tax is a real estate
tax, planned by a local government; property tax is paid by the owner of the property. The tax is
normally based on the price of the retained property, including land. The local central
governments will custom the calculated tax to supply water and drain improvements, provide law
implementation and fire service and other items estimated required.
Purpose of property taxes is accomplished by enlarging the property tax rate by the
current market value of the lands in question. Maximum taxing authorities will reanalyze the tax
rate once a year. Nearly all property taxes are taxed on real property, which is legally well-
defined and classified by the state government. Real property consists of the land, constructions,
or other permanent buildings. Personal property, such as electronic device and clothing, are not
subject to property taxes.
Collected property taxes are used by the central government of the authority in which the
property is located. The currency resources education, highway and road construction, public
servants, and other facilities that benefit the public-at-large. If we increase the price of land or
property, it will help to increase economic growth. We need to increase the rate of tax for
personal properties.
The fall in home ownership in America: The American Dream of home possession is
disappearing for an expanding number of individuals. The level of US family units owning their
homes slid a year ago to 64.5 percent, the eighth sequential year of decays and the least