By Riki Markowitz
In January, Mayor Steve Adler gave the annual State of the City speech, titled “The Spirit of Austin.” It was an 80-minute salute to Austin’s growth and how the community is coping well with an unprecedented population explosion. While the majority of the speech was hopeful, there were hints of darkness, specifically relating to property tax issues and the lack of affordable housing. Mayor Adler warned that “If we don’t change” and “If we stay on the path we’re on, we’ll end up like San Francisco.” Seemingly, the strategy for keeping property taxes from skyrocketing and housing affordable is to study everything San Francisco has done in reaction to its growth and do the opposite.
San Francisco is the cautionary tale for how a city can get enmeshed in an irreversible housing crisis. But we may already be there. Texas is tied in second place for having the highest average annual property tax bill in the country, according to an article published in USA Today this past April. Of all Texas’ metro areas, Austin has the highest average property tax at $7,012.
On a list that ranks states’ average effective tax rate, California is number 35. The average cost to buy a home in San Francisco – just over $1 million – may be far out of reach of housing prices here, but whether buyers are priced out of a million dollar home or a $300,000 home, the outcome is the exact same. Tax cuts or reform are practically election promise clichés. But in the case of Texas’ property tax issues, reform is crucial. Texas Association of Realtors (TAR) believes that for far too long, local taxing entities have been permitted to operate in the shadows and clearly have no intention of providing the transparency that people want. While homeowners have a right to appeal their appraised value to the Appraisal Review Board (ARB), a body made up of specially appointed local citizens, those who have appealed say the process is time consuming and the guidelines can be confusing.
Annual tax bill
Each year, after property values are assessed, homeowners receive a bill. Based on recent trends, property values are going up and as a result, property taxes also go up – several percentage points. To be clear, says Jack Stapleton, broker and owner of Realty Texas, that is a hidden tax. But thanks to semantics, local elected officials can proudly declare how seldom actual property taxes are raised. And some years, taxes have even been rolled back slightly, all while appraisal values go up.
There is a name for what’s happening – it’s called the Hidden Property Tax. In a bid for transparency and honesty, the Texas Association of REALTORS is campaigning to stop local taxing entities from misleading citizens.
Anyone can go to HiddenPropertyTax.com for information on the hidden property tax and watch a short video explaining how it works.
There are a whole slew of problems here, says Stapleton. According to TAR, the money collected by the appraisal district, “the largest single funding source for community services,” is bookmarked for schools, infrastructure, fire and police departments and many other programs. Most taxpayers agree that as citizens, it is our responsibility to help fund city services. But there is no valid reason why there can’t be transparency in how tax rates are determined.
To calculate the amount of revenue needed by the city, “the taxing authority decides how much tax they need to fund their budget that year by multiplying the current property values by the tax rate,” says Stapleton. However, when property values increase, homeowners’ tax rates are supposed to be rolled back. That has not been happening.
Increased property taxes are the main reason why Travis and Williamson County residents are getting squeezed out of their homes and the market. Recently, Mayor Adler recommended raising $600 million over 10 years and using those funds to preferentially house those displaced by gentrification. To raise that amount of money, according to one popular proposal, housing developers would incur a linkage fee on new construction, at about $2 per square foot. If a bill like this passes, it’s almost certain that cost will get passed down to buyers. So the city would be looking at a wave of new homes at an even higher price point, which won’t be a feasible option for the very buyers that the funds are being raised to house. Instead of displacing lower income buyers, those firmly in the middle class will be disenfranchised with this plan.
The populations that have it the worst right now are young families and anyone on a fixed income, like seniors and the disabled. Within hours of hitting the market, agents are seeing anywhere from 15 to 26 bids on affordable homes – anything under $200,000. While potential buyers, Millennials, for example, earn enough money to purchase a home and keep up with payments, when bidders are coming in with $15,000 in cash above asking price, those otherwise qualified lose out each and every time. Oftentimes, the winner in these highly competitive bidding wars are investors.
“I have had more than 60 to 100 phone calls and emails from clients because they’re getting calls from their mortgage companies saying that their escrows are short,” says Stapleton.
Darian Rausch, an agent with Urban to Suburban, and 2017 treasurer for Williamson County Association of REALTORS says, “Every year I spend about eight hours a week on the phone with clients during tax season when these bills first come out.” That’s a full day of work every week. And the calls last a couple months. Homeowners desperate to reduce their bill inevitably call their agent hoping to get help showing why their appraisal value is too high. Most find out that appealing is a waste of time and could even result in a higher bill.
Stapleton warns that because Texas is a non-disclosure state, Appraisal Districts go to sites like Redfin to estimate property values. It may sound legitimate on the surface since websites like these publish home sales numbers, but all agents know there are several different ways that a selling price is determined and those charged with appraising home values do not know how to interpret the numbers. “They could have closing costs, all kinds of fees, repairs paid for by the seller and commissions may or may not have been included in that number,” says Stapleton. “They’re getting that number without understanding what it includes and then unfairly assessing entire neighborhoods based on a home they’ve never been inside.” Many don’t just think it’s unethical, they believe it may also be a violation of citizens’ rights.
In their call for full transparency, TAR wants local taxing entities to publicly declare how much revenue they need and the tax rate that will allow them to generate that revenue.
The authority to reform Texas’ property tax laws is not within the power of the mayor or any singular elected official. That power lies with the Texas legislature, which is debating property tax reform this session. But Mayor Adler is concerned for constituents. In his State of the City speech, he lamented the fact that so many long-time Austin residents, minorities and seniors are being forced out of their homes and leaving the city to live in outlier communities like Buda, Manor and Elgin.
As long as people don’t know how much revenue is needed, the bills can, and likely will, continue increasing. Eventually, entire populations will be disenfranchised from home ownership in Austin and surrounding areas. If the local taxing entities are ordered to open lines of communication, there is that possibility that every penny they’ve collected is justified. But until then, the hidden home property tax is here to stay for those in Central Texas and statewide. RL