Slow housing market doesn’t have to hurt government revenues

How much home sales impact a city’s government depends largely on its property tax policies, Governing reports. Places least vulnerable to a slow housing market have strong caps on property tax rates and have assessed property values that lag far behind market values.

That’s good news for the city-parish government of Baton Rouge, which not only has a generous homestead exemption but also a voting public not enamoured with property taxes. Moreover, while there has been a residential slowdown here, sale prices have remained stable.

More broadly, places like California don’t suffer because Proposition 13 caps property tax rates—sparing counties from severe drops in property tax revenue when the housing market collapsed in 2007 because that revenue was already artificially depressed, according to a new analysis from Fitch Ratings.

By contrast, places without caps on property tax revenue have assessed values that trend closer to actual home values, creating more volatility.

Home values in Los Angeles and Chicago, for example, each had a roughly 40% decline between 2006 and 2012. But assessed values in Los Angeles only dipped by 2%, whereas in Chicago, they fell 28%.

Read the full Governing story.

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