IN RECENT YEARS, PROPERTY TAXES HAVE BECOME a much bigger factor in the home buying decision. Low interest rates, on the one hand, lure people into buying more expensive homes than they could normally afford. But those interest rates have been far outpaced by the rise in property taxes. In many places, buyers have begun to take a hard look at the tax rate for their potential new home. Some evidence suggests that high taxes can flatten an area's real estate market. When Bridgeport, Conn., raised property taxes a few years ago by 18.5 percent, the real estate market dried up, and local Realtors blamed the tax hike.
But the impact of property taxes is rarely so direct and varies from region to region. The Detroit News, for example, reports that property tax rates in Livingston County vary from 17 percent to 30 percent. That can mean a difference of thousands of dollars in property taxes on the same home plan in the next town over. But as planning experts point out, fleeing to areas with lower property taxes may simply shift the burdens of society from one area to another: In greater Portland, Maine, rural, outlying towns with lower taxes offer minimal social services for the homeless and mentally ill and don't fund large-scale cultural events. Instead, Portland foots the bill.
According to Forbes, high property taxes already scare people away from buying in certain neighborhoods. But if interest rates rise, as expected, they could be the straw that breaks the real estate market's back, because they're not something you can refinance or reduce. As long as home appreciation continues to outpace the rise of property taxes, a widespread revolt looks unlikely. But builders need to keep a close eye on this issue. Q: Should you build in a region proposing big tax hikes? A: Only if the market is hot enough and deep enough to remain viable even when interest rates increase.