A number of cities—including Boston, Philadelphia, and Washington, D.C.—are planning to freeze property tax assessments for long-time homeowners in gentrifying neighborhoods to protect long-time owners from paying higher taxes resulting from rising prices in gentrifying neighborhoods.
However, a new study of previous capped jurisdictions by Chris Cunningham, research economist and assistant policy adviser at the Federal Reserve Bank of Atlanta, found that neighborhoods protected by assessment caps actually gentrified faster than those in states without them.
Assessment caps that don’t also cap the property tax rate don’t actually constrain property taxes, but instead shift the tax burden from longtime owners to new buyers, Cunningham found. “However, assessment caps are only one possible response to rising property taxes. If voters wish to limit the growth in property taxes, they don’t need capped assessments—they can restrict the growth in property tax revenues directly,” he wrote.
States that constrain the property tax in some way seem to accelerate gentrification rather than slow it. One possibility is that because these are state-wide limits, the caps have reduced the turnover in more desirable neighborhoods, driving new homebuyers to marginal central-city neighborhoods. In that case, targeted assessment caps that apply only to currently low-priced neighborhoods could still be efficacious. On the other hand, the existence of an assessment cap may increase the long-run return from “pioneering” in a low-priced neighborhood.
“Property taxes do not appear to be a primary driver of neighborhood change, and concerns about gentrification do not appear to warrant interfering with the assessment process,” he concluded.