Property taxes ‘help home values ​​avoid wild swings’

Property taxes help reduce the risk of wild swings in property prices, according to a study by central bank economists.

The economic study found that property taxes can play a positive role in promoting more stable property price growth over time.

The results are controversial because the local property tax (LPT) is unpopular with many homeowners in this country, despite the fact that it has been almost a decade since it was introduced.

Ongoing or recurring property taxes result in less risk of property prices changing rapidly and unpredictably, the central bank economist said.

According to the business letter, Recurrent Property Taxes and House Price Risks, “A higher incidence of recurrent property taxes is associated with lower downside risk to house prices and a reduction in the volatility of potential house price outcomes overall.”

The study, by Martin O’Brien, David Staunton and Michael Wosser, adds that taxing property annually reduces the “severity of negative consequences without contributing to excessive property price increases during periods of significant growth”.

“Taken together, the results suggest that a higher incidence of recurring property tax receipts is associated with a reduction in the overall spread of potential home price outcomes beginning around two years.

“This suggests a positive role for recurring property taxes in reducing the downside risk and general swings in property prices.”

The reason for this is that buyers will look at the cost of owning the property in relation to the cost of renting it.

The property owner has to pay as this is one of the relevant factors.

The study states: “All else being equal, a higher property tax reduces the relative utility, and hence the demand, for ownership relative to rent.”

The economists say this makes people more indifferent between buying and renting.

“Theoretical and empirical literature in this area typically highlights that demand for home purchases, and hence home prices, are less responsive to positive/negative shocks to economic conditions in markets with a higher incidence of recurring property taxes,” the study states.

However, some real estate experts have pointed out that in this country we have very high rents and low property taxes compared to other states.

This means that in almost every area of ​​the country it is cheaper to service a mortgage than to rent for those who can get a mortgage approved and find a home to buy.

Property tax receipts relative to our national income are lower in this country than in other countries, the study found.

The economists said the property tax is a stable source of revenue for governments.

The paper notes that cyclical taxes such as income or corporate taxes and consumption taxes tend to rise and fall in line with economic growth.

This can pose challenges for governments in times of limited growth, when public finances may already be under pressure.

In contrast, revenue from recurring property taxes, as typically structured in most countries, tends to remain stable, due in part to the frequency of real estate revaluation and the use of valuation ranges to calculate tax liability.

This suggests that such taxes can provide a stable source of revenue that is less likely to be affected by the business cycle. Property taxes ‘help home values ​​avoid wild swings’

Fry Electronics Team

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