Changes in the Benefits of the Taxable Value Cap When Property Values are Decreasing: Evidence from Michigan

Abstract

We evaluate the changes in the benefits of the taxable value cap in the property tax in Michigan, stemming from decreases in real-estate values. We find a substantial increase in the dispersion of benefits. Comparing results for 2012 with results for 2008, we find that the tax savings for long-time homeowners were reduced in areas with low and medium rates of population growth, but that the benefits increased by 60% in high-growth areas. We also find that, in areas that experienced greater price appreciation before Michigan's housing-price decline than depreciation during the decline, long-time homeowners experienced reductions in their effective property-tax rates of 1.08 mills for each year of ownership. However, long-time homeowners in areas with pre-crisis appreciation that was substantially smaller than the subsequent depreciation actually experienced higher effective tax rates, relative to new homeowners. Finally, we explore the non-linearity of our results, comparing “older” and “newer” homeowners (i.e., those purchasing their property before or during the housing-market decline). the benefits nearly double for long-time homeowners with the exclusion of newer homeowners, with newer homeowners contributing to the higher effective tax rates. These findings are the result of inaccurate assessments, particularly overassessments, experienced by those purchasing their property during the housing-market decline.

Keywords

property tax assessment growth limit tax incidence

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