Cap Property Taxes for Long-Time Residents

Cap Property Taxes for Long-Time Residents

Prevent property tax increases from forcing owners out of gentrifying neighborhoods.

San Francisco (photo by authors)

What's the issue?

Rising property values, which are a hallmark of gentrification, can cause sharp increases in property taxes. Consider Denver, where over the last two years, home values have remained relatively constant in affluent areas but jumped by more than 50% in high-poverty neighborhoods like Sun Valley, Elyria-Swansea, and Valverde.  Vulnerable groups are the least able to absorb the higher taxes waiting for them when property values are reassessed at the end of the two-year cycle. Property tax increases can also increase NIMBYism and resistance to the building necessary to absorb population growth.

How does capping property taxes help?

A simple way cities can limit displacement in gentrifying neighborhoods and decrease resistance to new housing is to shield long-time homeowners from housing costs directly within their control. A property tax shield for vulnerable homeowners could work in a variety of ways. In Philadelphia, the city aims to reward those who have "toughed out" the city's long decline to see its resurgence. It does so by freezing property taxes for seniors and households earning less than $31,500. In addition, it offers a tax discount for homeowners who have "lived in their homes for ten years or more [and] have experienced a significant increase in their property assessment from one year to the next." Alternatively, tax deferral programs allow elderly and/or low-income homeowners to defer paying the increase in their property taxes until they sell their home.

Property tax caps for long-time residents serve two purposes. First, they help homeowners avoid being forced out under the weight of property taxes. Second, they alleviate fears that building new market-rate housing will increase property taxes for existing residents. This is important, because even though it is important to preserve naturally occurring affordable housing, it is also important to boost the supply of housing overall. Targeted property tax caps would work best in a city with substantial homeownership, especially in gentrifying or vulnerable low-income areas

"The Actual Value Initiative: Philadelphia's progress on its property tax overhaul," The Pew Charitable Trusts, 2015.

When and where does this policy work best?

This policy works best when a neighborhood or city is displaying the early stages of gentrification. In this stage, the area is experiencing rising rents and home value prices but overall remains fairly affordable. It is important that neighborhoods are affordable because although this policy would help with housing costs, beneficiaries of this policy should also be able to afford the services and amenities in their neighborhoods if they decide to stay. This policy is particularly beneficial in areas with many seniors.

Works best for neighborhoods in early-stage gentrification

Works best when neighborhoods are/have...

What are some possible problems and how can we address them?

When cities adopt property tax caps for long-time homeowners, they sacrifice some revenue. A policy that limits property tax caps to low-income homeowners at risk of being displaced would allow a city to protect is most vulnerable residents while benefiting from increasing property values. Other rising property values not covered by the cap can help offset lost revenue from the program provided that the city is not also sacrificing property tax revenue to encourage development.