Detroit Has The Second Highest Residential Property Taxes In The Nation, Says Study

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If you’re a Detroit homeowner, you might get the feeling that you’re paying through your nose for your property taxes. That feeling has been validated (more or less) in a report released by The Lincoln Institute of Land Policy.

The 50-State Property Tax Comparison Study, produced in partnership with the Minnesota Center for Fiscal Excellence, tracks the effective tax rate, the tax payment as a percentage of market value, for residential, commercial, industrial, and apartment properties in more than 100 U.S. cities.

This year, the report analyzes why tax rates vary from city to city, looking at factors such as the reliance on property taxes, variation in property values, different treatment of residential and commercial property, and the level of local government spending.

“The property tax is a critical source of revenue for local government services, from education to public safety,” said Joan Youngman, chair of the Lincoln Institute’s Department of Valuation and Taxation. “This report provides a snapshot of property taxation across cities, one step toward a fuller picture of how communities meet their responsibility to serve their citizens.”

The five American cities with the highest property tax rates are

Bridgeport, CT – 3.88 percent (High property tax reliance)
Detroit, MI – 3.81 percent (Low property values)
Aurora, IL – 3.72 percent (High property tax reliance)
Newark, NJ – 3.05 percent (High property tax reliance)
Milwaukee, WI – 2.68 percent (Low property values, High property tax reliance)

According to this report, Detroit homeowners pay 3.81 percent of their home’s market value in property taxes. Detroit’s property taxes are so high because of the low property values. It takes relatively high tax rates to meet even the most basic public service needs. Detroit isn’t the only city in this position. Milwaukee is forced to keep property taxes high due to low property values as well.

The five U.S. cities with the lowest property tax rates on a media valued home are

Boston, MA – .67 percent (Classification shifts tax to business, high home values)
Birmingham, AL – .66 percent (Low property tax reliance, classification shifts tax to businesses)
Denver, CO – .66 percent (Low property tax reliance, classification, high home values)
Cheyenne, WY – .65 percent (Low property tax reliance)
Honolulu, HI – .30 percent (High home values, low local government spending, classification)

The rankings for property taxes on commercial property don’t get any better for Detroiters. The city has moved up a place, coming in first in the nation for highest effective property tax rates on $1 million commercial property.

Detroit, MI – 4.13 percent (Low property values)
New York, NY – 3.96 percent (High local government spending, classification shifts tax to businesses)
Providence, RI – 3.71 percent (High property tax reliance)
Chicago, IL – 3.60 percent (Classification, high local government spending)
Bridgeport, CT – 3.59 percent (High property tax reliance)

The cities with the lowest commercial property taxes are

Virginia Beach, VA – 1.03 percent (High property values, Low local government spending)
Billings, MT – 1.01 percent (Low local government spending)
Honolulu, HI – .91 percent (High property values, Low local government spending)
Seattle, WA – .88 percent (High property values, Low property tax reliance)
Cheyenne, WY – .64 percent (Low property tax reliance)

With the Neighborhood Enterprise Zone tax breaks (which were available to only a portion of Detroit homeowners) set to expire in seven years, Detroit has a tough question to answer. The city has sky high property taxes because of low property values. Can it afford to extend the NEZ tax breaks?

What about the homeowners who haven’t gotten a tax break at all? They’re paying roughly 3.81 percent of their home’s market value in taxes every year. Will there be relief for them?

As Detroit continues to try to attract newcomers, it will have to grapple with the unsavory side of life in Detroit – high property taxes being one of them.

UPDATE, 3:47 p.m.: We heard from Dan Austin, deputy communications director of the city of Detroit after this post ran, and he wanted to share that they are going “neighborhood by neighborhood, reassessing and lowering assessments across the city.” We’ve previously covered this on Daily Detroit.

Also, from David Szymanski, treasurer and deputy CFO of the city of Detroit, via email. The numbers refer to the pages inside the report:

The tax bill itself is relatively low due to our significantly reduced assessments (see page 14).  This shows that while our tax rate is 2nd highest the actual tax bill is only 42nd highest.  I think this report uses the largest city in each state so we are 42nd of 50 cities for actual tax bill.  Have to admit, I am not sure their report is limited to 50 cities however.
Additionally have to point out the value in being an owner occupant in Detroit.  P. 37 shows the relatively low rate for a homestead in Detroit as compared to commercial property.
What this means is that living in Detroit is extremely affordable.  With the cap on taxable value this is the place to be in that regard.

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