Property Taxes — Highballed or Lowballed? It Might Depend Upon Location, Location, Location!
With property values on the rise, the threat of increasing property taxes looms over homeowners. New Jersey has the highest property taxes in the country. Although they may be a nuisance to homeowners, property taxes help finance local government projects such as education, public works such as roads and parks, and police and fire services. However, in some communities, the burden of high property taxes impacts people disproportionately.
Highballed Property Taxes
Bonita Anderson, a mother and grandmother from Baltimore, lost her home at 70 years old after being unable to pay her property taxes. She purchased the home in 2009 and made payments towards the $100,000 mortgage for over a decade. In 2020, Anderson was diagnosed with cancer and fell behind on her property taxes while undergoing treatment, as much of her expenses went towards medical bills. Anderson lost her home in 2022 at a Baltimore City tax sale, where it was auctioned off.
By the end of 2022, Anderson had paid the city of Baltimore $18,900. This amounts to more than triple her outstanding taxes, but the payments were applied to taxes that had accrued to the new owner of Anderson’s home rather than her own back taxes. In 2023, Anderson’s home was foreclosed.
In Baltimore, 44,000 properties were listed as municipal tax sales from 2019 to 2023, 92% of which were located in majority non-white neighborhoods. According to an analysis by ABC, homeowners in predominantly Black and Brown areas are typically paying higher taxes than those in white neighborhoods for houses that would sell for a similar price on the open market. On Long Island, property owners in the predominantly white suburb of Garden City face a residential tax bill of around $10,000 to $15,000. Residents of the nearby neighborhood of Hempstead, 88% of which are Black or Latino, face a similar tax bill for properties that are worth significantly less than the homes in Garden City.
A study conducted by New York University’s Furman Center in New York City found results that suggest the city’s property tax system discriminates against New Yorkers of color. The study examined the correlation between the average effective tax rates and neighborhood demographics for Class I residential properties. It found that homeowners in predominantly non-Hispanic Black neighborhoods of the city pay a higher effective tax rate than homeowners in areas with predominantly non-Hispanic white residents. The study applied the citywide average effective tax rate to Fiscal Year 2018 and found that homeowners in neighborhoods with a predominantly Black population would have paid about $17 million less in property taxes per year, and neighborhoods with the fewest Black residents would have paid $10 million more in property taxes per year.
Lowballed Appraisals
High property tax rates are not the only disproportionate real estate factor impacting Black homeowners. Black homeowners are also often victims of lowball appraisals when looking to purchase or refinance their homes. A low appraisal lowers the price a home will sell for, and when combined with high property taxes, the chances for Black homeowners to build wealth are limited.
Black and Latino homeowners are around twice as likely to receive a lowball appraisal. A 2018 report by Brookings found that on average, homes in predominantly Black neighborhoods are undervalued by $48,000 per home on average. This is around 23% less than similar homes in neighborhoods with fewer Black residents.
Implications
When combined with high property tax rates, lowball appraisals severely limit a homeowner’s ability to build wealth. Homeownership has been an essential aspect of the “American dream” and allows individuals and families to build wealth that can be passed on through generations. High property tax rates and low appraisals make this dream less attainable for those who are disproportionately impacted.
In New Jersey, property owners are protected under the Freeze Act, which freezes property tax assessments for two years following a successful tax appeal. This provides property owners with a layer of protection against municipal retaliation.
As New Jersey’s budgetary needs continue to climb higher, municipalities around the state may begin to rely more heavily on property tax revenue to perform local government functions. Property owners in New Jersey have the right to appeal their tax assessments. An experienced property tax attorney can help appeal properties that have been over-assessed.
The author acknowledges the assistance of Alexandra Schraufnagl, a summer intern at McKirdy, Riskin, Olson & DellaPelle, in preparing this article. Ms. Schraufnagl is a member of the Class of 2027 at Providence College.
