Download this Paper Open PDF in Browser

Anticipated Property Tax Increases and the Timing of Home Sales: Evidence from Administrative Data

36 Pages Posted: 2 Feb 2017  

William H. Hoyt

University of Kentucky - Gatton College of Business and Economics

Aaron Yelowitz

University of Kentucky - Department of Economics

Date Written: December 2016

Abstract

Restrictions imposed on property assessment practices by state legislation such as Proposition 13 in California and Proposition 2½ in Massachusetts can lead to significant divergences between the assessed and market values of property, particularly for households with long tenures. As properties are assessed at their market value when sold, this can lead to a significant divergence in the property tax payment for a current homeowner and a prospective purchaser of the property. This may lead to “lock-in”, decreased mobility, of homeowners reluctant to lose their tax advantage. Here using data on single family dwellings in Lexington, KY (Fayette County) we examine another practice leading to a systematic difference between assessed and market value of properties, the practice of assessing properties in individual neighborhoods on a four-year basis. In times of high housing appreciation, the difference in tax payments for houses last assessed two or three years earlier and their market values, the tax base for a new purchaser, can be significant and lead to a lock-in effect. Using administrative data from the Fayette County PVA we find evidence that housing sales are higher in the year before a neighborhood assessment suggesting that households adjust their mobility to capture the tax advantage associated with limited assessment.

Keywords: property taxation, assessment, lock-in

JEL Classification: H200, H710, R300

Suggested Citation

Hoyt, William H. and Yelowitz, Aaron, Anticipated Property Tax Increases and the Timing of Home Sales: Evidence from Administrative Data (December 2016). CESifo Working Paper Series No. 6264. Available at SSRN: https://ssrn.com/abstract=2910260

William H. Hoyt (Contact Author)

University of Kentucky - Gatton College of Business and Economics ( email )

Dept. of Economics
Lexington, KY 40506
United States
606-257-2518 (Phone)
606-323-1920 (Fax)

Aaron Yelowitz

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

Paper statistics

Downloads
11
Abstract Views
86