House Prices & Property Tax Revenues During the Boom & Bust: Evidence from Small-Area Estimates

Although the recent housing crash put the U.S. economy into a tailspin, we know very little about how the massive increase and decrease of house prices influenced property tax collections. Using local level housing data from Zillow matched to property tax data from 1998 to 2012, two questions are examined. First, the elasticity of property tax revenue with respect to house values is estimated. Second, the timing of this elasticity is determined. The analysis is able to rule out that local policy makers capture the entire increase of house value in property tax revenues but unable to rule out that increases in house values are completely offset by changes in effective property tax rates. Decreases in house values have an elasticity of between 0.3 and 0.4 and take three years for changes in house values to impact property tax revenues. While property tax collections declined, local policy makers adjusted effective millage rates such that revenues did not decline as much as home values.