Housing prices rapidly rose during and after the pandemic, and homeowners across the nation are feeling sticker shock as property tax assessments catch up. This price surge has slowed in some areas but homeownership is still out of reach for many buyers and an increasing number of homeowners are severely cost-burdened, spending more than half of their income on housing and utilities. The situation is just as challenging, if not more so, for renters. Tax policy alone cannot solve the housing crisis but lawmakers who are focused on tax policy solutions have better options available than sweeping property tax cuts and caps: property tax circuit breakers, renter credits, vacancy taxes, land value taxes, and changes to existing property tax assessments can move the needle on the affordable housing crisis.

As workers face more and more economic uncertainty, layoff anxiety, and concerns about global trade wars, higher housing costs can feel like the final straw. Higher-than-expected property tax payments are a real challenge when many households are already struggling to make ends meet. Even though there are many housing policies that could more directly address housing affordability, some lawmakers have latched on to the idea that reducing property taxes is the solution to the housing crisis.

At a surface level, the logic has appeal. Property taxes account for a substantial, ongoing, and variable cost of homeownership – and between 2019 and 2024, property taxes nationwide have increased 30 percent. Cutting property taxes may seem like a straightforward, immediate, and politically expedient step.

But property taxes are not perfectly correlated with rising home values. While the relationship between property values and property taxes varies across states, research shows that property tax bills only increase 0.3 to 0.5 percent, on average, for every 1 percent increase in property value. Therefore, tax bills are rising much slower than home values are appreciating. To drive this point home, in 2022, the overall amount of property taxes paid increased while effective property tax rates – the tax bill as a percentage of a property’s value – slightly dropped in large cities.

Sweeping Property Tax Cuts Aren’t the Answer

Property tax bills are received once or twice a year and are generally due in one lump sum. When property taxes rise dramatically or unexpectedly, this leads to increases in mortgage payments for homeowners, and holes to fill for people on fixed incomes. Those complaints filter up to state legislators, who have little power over municipal budgets, but who create the rules for what and how much those municipalities can tax. This leads to a variety of property tax caps, cuts, or even elimination proposals.  

These proposals have consequences. Many would drastically reduce local government coffers. This would force policymakers to either raise other taxes or cut schools, public safety, public parks, and other services. For example, in Massachusetts, Proposition 2 ½ led many communities to lay off teachers, police officers, firefighters, and other public employees. A 2015 UCLA study found that starting teacher salaries in 1988 were thousands of dollars less in school districts subject to property tax limitations than in other school districts. The same study found that stringent property tax limitations were also correlated with larger average class sizes, declines in standardized test scores, less-trained public employees, fire departments that are more dependent on volunteers, poor response times for police and fire services, and other examples of depleted public services. Another study of New York’s 2011 property tax cap confirms the impact of lost education revenues on children’s reading and math performance.  

Additionally, across-the-board, untargeted property tax cuts or caps frequently result in large windfalls for wealthy households. They can also create a “lock-in” effect where owners are unwilling to move homes for fear of losing their property tax benefit. These property tax cuts and caps result in intergenerational inequities, making it significantly harder for young families to get on the property ladder; to the extent that they do manage to purchase, young families end up facing radically higher property tax levies than their older, long-term neighbors in identical houses.  

In the absence of these policies, over time, empty-nesters in larger, more expensive homes are usually more likely to downsize and reduce their tax bills; this turnover opens up inventory for younger families. One recent paper found that a “doubling of property tax rates is associated with a 20 percent drop in housing prices and lower home-price-to-rent ratios.” The result: states with higher property tax rates tend to have cheaper housing prices, as property owners include higher property tax values in the long-term calculation of mortgage costs. The lock-in effect in states with lower property tax rates has created an inefficient housing market in which empty nest baby boomers own 28 percent of the nation’s large homes while millennials with children own just 14 percent.  

How to Ease the Affordability Crisis – and How Tax Policy Can Help

A baseline driver of our current housing crisis is the sheer shortage of homes. Building new market-rate housing triggers “moving chains” in which high-income people move into the new units and vacate their current, older homes, eventually freeing up homes for low- and moderate-income families. While housing inventory has grown a bit in recent years, it has not grown by nearly enough. And to the extent there has been new construction, much of it has not been affordable to low- and moderate-income households. Meanwhile, deportation policies and tariffs will make construction more expensive and may hinder continued growth and increase costs.

There are also plenty of short-term housing solutions such as building more affordable housing, easing accessory dwelling unit (ADU) regulations, limiting private equity ownership of homes, and expanding financing opportunities for purchasing small-dollar homes. On the rental side, we need stronger rental subsidy programs, rent control measures, and tenant protections, among other policies.

That said, lawmakers choosing to use tax policy to support struggling homeowners have better solutions than sweeping property tax cuts and caps. Policies like property tax circuit breakers, renter credits, vacancy taxes, land value taxes, and changes to existing property tax assessments are tools available to ease the affordability crisis and improve the overall regressive tilt of property tax systems.

Vacancy taxes 

About 10 percent of the nation’s housing inventory was vacant in 2022. Vacancy taxes levy a tax on residential and/or commercial property owners who leave their properties vacant over an extended amount of time. Such taxes encourage landlords to either sell or rent out habitable properties, thereby increasing the supply of housing and reducing prices.

Land value taxes  

Land value taxes, a progressive tax on the unimproved value of land rather than on improvements, incentivize property owners to maximize the value of their land rather than speculate on and hoard underused land. These taxes encourage property owners with empty lots or run-down buildings to get them back into use, leading to more housing, especially in amenity-rich neighborhoods.

Repealing assessment limits  

Assessment limits control how much an individual homeowner’s taxes can rise due to increases in assessed home values. The assessment values are reset when the home is sold, creating harmful inequities in property valuations that favor long-term homeowners over first-time buyers and lower-income residents. These exist in most states, though their restrictiveness varies by state. Repealing assessment limits would help mitigate the “lock-in” effect described earlier, opening up more housing stock for all households.

Renter tax credits  

Just 34 affordable and available homes exist for every 100 of the lowest-income renter households. While there are mechanisms at every level of government to support homeowners, states and localities generally provide less generous tax credits for renters. Existing renter tax credits are either nonrefundable, limited to the elderly and/or people with disabilities, or fairly small when compared to rent payments. Expanding access to and strengthening renter tax credits would also help all low-income renters, particularly Black and Hispanic households who are more likely to be renters at all levels of income. Although renter tax credits do not directly increase housing stock, they can help tenants build savings and move to areas with more available housing or better job markets.

Property tax circuit breakers  

Property tax circuit breakers are policies that help households prevent a property tax “overload” by crediting back property taxes that go beyond a certain share. Circuit breakers are among the best options available for targeting property tax assistance to the families who need it most and preventing displacement since they address the disconnect between property tax bills and a household’s ability-to-pay. Most states (29 states and DC) offer some kind of circuit breaker, though these policies vary widely in size and scope. Property tax circuit breakers are most effective when they are available to people of all ages, not just seniors, and to both homeowners and renters.

Equitable and timely property tax assessments  

Studies have consistently shown that nationwide, tax assessors over-assess Black-owned homes relative to their market value. As a result, Black families pay 10 to 13 percent more in property taxes each year than a white family would in the same situation. This is especially concerning since the values of Black-owned homes tend to grow more slowly than values of white-owned ones because of housing discrimination. Property tax rate caps and assessment limits tend to exacerbate these inequities since they primarily benefit wealthier homeowners in high-value homes who are more likely to be white. Expanded oversight, accuracy checks, more regular assessments, transparent assessment methodologies and data, and better access to the appeals process can help reduce inequities. More fair and accurate assessments also help prevent foreclosures by ensuring that residents pay what they owe and reduce the risk of tax liens. This directly helps individual homeowners and supports overall housing stock since they’re less likely to fall into foreclosure and disrepair.

Addressing the affordable housing crisis requires strong coordination across multiple levels of government, agencies, and sectors. Smart, targeted tax solutions must be paired with regulatory reform, better land use, equitable financing mechanisms, tenant and homeowner protections, and more funding to accelerate affordable housing construction and maintain the viability of existing homes. Cutting property taxes may score political points, but it will not bring us closer to a future where housing is safe, adequate, and affordable.

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