Growth and Residential Property Taxes: A Model for Estimating Direct and Indirect Population Impacts

Abstract

The popular hypothesis that population growth causes property taxes to increase, particularly for homeowners, has led to calls for tax limitations and population growth management at the state and local levels. If, in fact, population growth does increase property taxes, particularly those of the homeowner/voter, then public officials have an interest in how and why this increase occurs. With this knowledge they can, if they wish, change the property tax system so as to alter the tax impact of population growth. In, on the other hand, population growth does not under the present legal structure affect local property taxes, public officials can tell those who would control population growth that reducing the rate of growth is not likely to affect their taxes. More importantly, a clear understanding of the relationship between population and property taxes should illuminate other possible causes, perhaps indirectly related to population growth, of the rise in homeowner's property tax bills. This paper is an attempt to determine the extent to which population affects single family residential property taxes and the mechanisms through which such effects are transmitted. Because a homeowner's property tax bill is the product of a tax rate and an assessed value, the possible influence of population on each of these variables and their underlying determinants is explored. For its theoretical base, the model developed in the paper draws on recent attempts to model local fiscal behavior. This literature, summarized by Deacon (1977a, 1977b) and Hirsch (1977), increasingly uses public choice theory to explain the demand for and provision of collectively provided goods and services. Fox and Sullivan (1980) explicitly used this theoretical base in their empirical study of the expenditure impacts of population growth.1 This paper extends the populationlocal fiscal behavior models in two ways. First, it broadens the scope of such models. Whereas previous studies have generally focused on the determinants of