Inequities created by Oregon’s property tax system are significantly influencing the housing market, according to a report conducted by the Northwest Economic Research Center (NERC). The report, commissioned by the League of Oregon Cities, investigated the impact of property taxes on property values.
“Our research clearly indicates that property owners with arbitrarily low property taxes receive a boost in property values,” said Dr. Tom Potiowsky, former Oregon state economist and director of NERC. “Oregon’s property tax system creates a hidden subsidy for these property owners and shifts the burden of local services on to others.”
In Oregon, taxes are largely based on a property’s market value from the mid-1990s. Since property values have grown unevenly since then, inequities in property taxes have emerged, particularly in inner North, Northeast and Southeast Portland, where values have increased significantly.
For example, on average, homes in the Boise, Eliot, King, Humboldt, Sabin and Woodlawn neighborhoods are taxed on less than 45 percent of their real market value. For the average home, valued at $314,000, this can mean an increase in value of between $6,200 and $30,000, according to the report.
Meanwhile, in neighborhoods such as Powellhurst-Gilbert, Lents and others east of 82nd Ave, which are taxed at 75 percent of their values, the current property tax system can reduce the average property’s value by $3,100 to $15,000.
That means property owners selling similar homes in disparate neighborhoods could attribute between $9,300 and $45,000 in their property’s potential sale price to the whimsies of Oregon’s property tax system.
“This report highlights in pretty stark terms how unfair our current property tax system is,” said Chris Fick, policy analyst for the League. “The differences we see in property taxes aren’t targeted for those who are most in need of tax relief. Instead our system is just as likely to be giving a tax break to a lawyer buying a home in North Portland and offering no relief to a low-income senior in East Portland.”
The differences in property taxes are a product of Measure 50, which established assessed values (AV), also known as taxable values, based on mid-1990 real market values (RMV) and capped the annual rate of growth in assessed value at 3 percent. As property values increased at higher rates, assessed values are often no longer a reflection of actual market values.
The report states that some property owners are “enjoying an increase in their property value that is not derived from property or neighborhood improvements… Instead this increase is a by-product of a property tax system separated from the market.”
While the report examined properties in Portland, the authors note that “it is reasonable to expect these dynamics to be present in other areas of the state.”
CLICK HERE for the full report.