Thursday, December 24, 2020
Andrew T. Hayashi (Virginia), Dynamic Property Taxes and Racial Gentrification:
Many jurisdictions determine real property taxes based on a combination of current market values and the recent history of market values, introducing a dynamic aspect to property taxes. By design, homes in rapidly appreciating neighborhoods enjoy lower tax rates than homes in other areas. Since growth in home prices is correlated with — and may be caused by — changing neighborhood demographics, dynamic property taxes will generally have racially disparate impacts. These impacts may explain why minority-owned homes tend to be taxed at higher rates. Moreover, the dynamic features of local property taxes may subsidize gentrification and racially discriminatory preferences.
Although market forces can cause property values to depend on neighborhood demographics, property taxes do not generally amplify the advantages that come from proximity to white homeowners. Property value derived from racial preferences is taxed like any other source of value. But many jurisdictions have adopted dynamic property taxes that tax gentrifying neighborhoods at lower rates than other neighborhoods, encouraging processes of racial gentrification and raising difficult distributional questions that previously have been ignored.