The Impact of a tax increase on condos
(3/31/2010) Q: According to the Register the residential property tax may increase to 8.8% and condominiums will increase by 15.1%. Can you explain why the increase to condo owners is so much higher then homes?
A:The indications are averages. It must be noted that nearly all [municipal] valuations of residential property are based upon analysis of market transactions (market data). This is important basis because: 1) value, price, and the decision-making processes of buyers and sellers of residential properties typically based their decisions on examination of market data sales and offerings; and 2) there are generally large amounts of sales data upon which to base value estimates. Such was the case for the 2006 revaluation.
One of the primary reasons for revaluation, indeed the basis of the law mandating periodic revaluations, is equalization. This is recognition of the fact that some property types and groups increase or decrease in value at differing rates. Without revaluation, property types that increase in value at greater rates tend to enjoy significant progressivity, and vice versa. Regressivity is evident when tax burden reflects higher ratio of tax to price, and progressivity is evident when tax burden lower ratio of tax burden to value. Properties exhibiting regressivity tend to bear a greater portion of the municipal tax load as compared to properties exhibiting progressivity.
The time period from 2001 to 2006 saw considerable increases in all property types, but generally greater value increases at the more modest end of the price ranges due to increased demand (reflected in higher prices and rates of increase), including condominium units. The over-supply of condo units that existed prior to 2001 was absorbed and the supply-demand relationship created pressure on the condo market and other residential properties of similar character.
The greater demand was influenced by a variety of factors including changing market conditions; demographic changes, including smaller family and household size, formation of more households, greater longevity; diminished construction of new units; and other forces.
These price forces caused greater pressure on various available units such as condominium units thus reflecting higher rates of increase. This is then manifested in the greater rates of appreciation imputable to the condominium units and in the resumption of the phase-in.