How Good are your Assessments?

How Good are your Assessments? Dr. Bill Batt

It's one thing to shift the property tax burden off structures, which are productive capital, and on to land values.  It's another thing to assure that the assessed value for each component is accurate and up to date.

A recent Federal Reserve Board study has figured that building values typically decrease on average of about 1.5 percent yearly, whereas land values appreciate at rates far higher, in some instances as much as 20 percent in a year when a real estate bubble is in full flower.  This means that if new homes reflected a building value of two-thirds of the total parcel cost as is often true (the balance being land value), the depreciation over the lifetime of a typical mortgage of thirty years would essentially reverse the proportions: two-thirds land value and one-third improvements.  The increased market value of housing is likely increasingly to be the land component.

What this means for assessment practices is that they must be regular and frequent, at the very least; otherwise the taxes on which they are based are likely to be quickly askew.  Moreover, there is a tendency to undervalue land site in commercial downtown locations which leads to a further shift onto residential property.  A final concern is the lack of concern given to the proportion of value assigned to each component -- land and improvements.  Because both are typically taxed at the same rates, it matters little to assessors how carefully the values are assigned.  The upshot of all this is that the land values in most property tax districts are widely disparate, whether measured by dollars per square foot or using more complex formulas.

It has been difficult historically to ascertain the comparative accuracy of land values in local tax districts, even with the most intense scrutiny.  This is now changed with the advent of GIS computer technology.  GIS mapping allows the creation of accurate land value maps (also called landvaluescapes) that quickly reveal how well the land assessments have been performed and how up to date they are.  What these maps generally reveal is that local assessments of land value, leaving aside the assessments of improvements, are clearly deficient. 

The accuracy of assessments is important not just for any potential application of land value taxation but under conventional property tax administration as well.  Assessors are generally in agreement that land sites are far easier to value than are improvements.  (http://www.henrygeorge.org/ted.htm) All this offers one more reason why land value taxation is a compelling solution to solving the challenges of administering tax justice.