Property Tax Revenue Growth
In the third quarter of 2023, U.S. property owners paid $129 billion in property taxes, according to NAHB analysis of the Census Bureau’s state and local tax data. Over the four quarters ending in Q3 2023, state and local governments collected a total of $757 billion in property tax revenue, marking an 11.6% increase compared to the same period in 2022. This increase follows a rising trend, with property tax revenue growing at a rate exceeding 10% for three consecutive quarters for the first time since 2009.
Driving Factors Behind the Growth
The significant rise in property tax revenue can be attributed to higher home value assessments. These assessments often lag behind market prices by one to two years, meaning that as home values increase, property taxes also rise. This increase is particularly notable given that property taxes now account for 37.9% of total state and local tax receipts for the year ending Q3 2023, up slightly from 37.7% in the previous quarter.
Comparison to Other Revenue Sources
While property taxes have been on the rise, other revenue sources have shown a decline. Individual income tax revenue fell by 16.0%, and corporate income tax receipts dropped by 3.9%. Sales taxes, however, increased, contributing 28.6% to the overall tax receipts. Individual income tax receipts made up 26.3% of total revenue, marking their smallest share since 2011.
The stability of property tax receipts stands in contrast to the more cyclical nature of sales and income taxes, which are more sensitive to economic fluctuations. Property tax collections, being based on tangible property values and annual assessments, tend to be more stable, even in times of economic uncertainty.
Property Taxes and Housing
A significant portion of property tax revenue is derived from housing, including owner-occupied homes, rental properties, and commercial real estate. In fact, housing accounts for the largest share of property tax collections among all real estate assets, underlining the critical role of housing in state and local government revenue generation.
Conclusion
The sustained growth in property tax revenue reflects a stable and resilient source of income for state and local governments. Despite fluctuations in other forms of taxation, property taxes continue to provide a reliable revenue stream, driven by the ongoing rise in home values. This trend is expected to persist, particularly as home values and housing demand remain high across many regions.