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In 1978, California voters passed Proposition 13, a radical tax cut that transformed the state and shocked the whole country.
Property taxes would now be based not on the current value of a home or office, but what you paid for it, adjusted slightly, unless there is a major construction. The measure resulted in education spending cratering and wildly unequal property taxes that persist today. Long-standing property owners or their heirs often pay virtually nothing in property taxes, while new purchasers pay through the nose, even for houses on the same block. By allowing existing residents to pay lower taxes than newcomers, California effectively punishes home sales, “locking in” existing residents. There are a number of reasons why California’s innovative economy isn’t matched by a growing, dynamic property market, and a number of reasons why the state has so much inequality, but Proposition 13 is a key factor.
This “tax revolt” reverberated beyond the Golden State. It is widely understood to have prefigured the election of Ronald Reagan in 1980 and the rise of modern conservatism. And several other states followed suit with different tax and expenditure limits, reshaping who pays taxes and what services people receive.
In other words, it was a big deal.
But when the Wall Street Journal declared that we are currently in the middle of a property tax revolt, almost no one noticed. But you don’t have to look too far to see its reach. States and cities around the country are questioning whether the property tax, the most important source of local tax revenue for school districts and cities around the country, is in need of serious reform—or even abandonment.
Election Day saw a number of property tax–cutting initiatives on the ballot. Georgia adopted a Proposition 13–like measure limiting annual residential property assessment increases (local governments can opt out, though). Florida revised its homestead exemption, effectively cutting property taxes for all resident homeowners. Wyoming mirrored a number of other states by passing an amendment to tax residences at different rates from commercial property. North Dakota voters considered, but ultimately rejected, repealing the property tax in its entirety and replacing local property taxes with state funding. And a number of states passed new exemptions for favored groups, like the elderly and veterans. Since the election, the Chicago City Council voted 50–0 against a property tax increase proposed by the city’s mayor.
This is not just a 2024 phenomenon. In 2023, Texas, one of our most property tax–dependent states, substantially increased its homestead exemption and passed an annual appraisal cap. Even more radically, more than 10 states have committed themselves to “universal school choice,” a system through which state governments provide individuals with subsidies to go to private or home schools. This system would not only make schools less public, but less local as well, as the funding base for vouchers is usually a statewide tax like the sales tax or income taxes.
Today’s property tax revolt is a series of nested ironies. The first is that it is largely driven by property owners who are angry about how much their properties have increased in value. Most of the reforms are likely to make the problems of the contemporary property market worse. That is, they’re likely to make the housing market more sclerotic, make it harder for young families to afford homes, and increase inequality. But, deep in the most radical policy proposals, there is another irony. Reforms intended to achieve other goals may end up addressing a long-standing problem: the inequality of local governmental resources.
Sources of the Property Tax Revolt
The period after the pandemic saw a huge increase in demand for space—for bigger houses and for new “household formations,” or people moving out of situations where they lived with roommates or parents and into their own homes. Incomes increased and many people wanted to take advantage of working from home, at least some of the time. Residential property prices far away from downtowns increased faster than property prices downtown. It has been a good time to own a home, particularly in suburbs and exurbs.
But an increase in value of your home does not give you cash in hand, and property taxes are generally based on the current market value of homes. And now, when the tax bills come due, owners are mad, despite the fact that they own much more valuable assets. Many local governments have not responded to their increasingly large residential property tax bases with property tax rate cuts, or at least not big enough cuts to make the owners of these houses happy.
While the residential boom has been biggest in suburbs and exurbs, urban residential property owners are just as mad. Commercial real estate, particularly downtown offices, has fallen in value very dramatically since COVID. As a result, frustrated homeowners will bear a higher percentage of local governments’ fiscal burden, at least in jurisdictions that have substantial amounts of commercial property. This is a result of the property tax system working well. At least in big jurisdictions, property taxes provide a form of insurance for property values, as I argue here, a real benefit as it is hard to insure the value of property. But homeowners do not want to pay out others’ insurance.
Is the Revolt Productive?
At the top of anyone’s list of problems in the contemporary property market would be: 1) a lack of affordability, particularly for young, first-time buyers; 2) the market has become too sclerotic, with too few people putting their homes on the market and too few people being able to move; and 3) massive inequality, with those lucky enough to have bought homes seeing huge wealth gains and those renting locked out of these benefits.
Property taxes make houses more easily available for the young, as this excellent paper shows. Higher property taxes reduce sales prices, reducing the amount of cash a buyer needs upfront, but they require payments over time. That is, taxes work a lot like a mortgage, and thus help capital-constrained, first-time homebuyers. Today’s tax revolt stands to make the property market work less well for first-time buyers.
It also stands to make the market more rigid. Changes like those just passed in Georgia slow the rate at which homes change hands by making new buyers and builders pay more in taxes than existing holders. This makes it harder for people to move to opportunity and punishes people for building new homes. And, just as Proposition 13 has, this will provide huge benefits to the already well-off. Increased exemptions, like we’ve seen in Florida and other jurisdictions, don’t address systematic problems and move more of the tax burden toward commercial property, like suffering office markets and apartment buildings.
There’s that irony again. The residential property owners who benefited from the boom are angry enough to change the property tax system in ways that will harm those locked out of the system.
There is a silver lining, though. The most radical property tax–related proposals are argued for as either general anti-tax measures or as efforts to privatize schooling. Whatever you think of their intended goals, they would also have an unintended effect of ameliorating one of the worst features of the property tax: its localism.
If North Dakota voters had voted for a repeal of the property tax, much of the revenue used to replace it likely would have come from state taxes. (The group formed to oppose it was called “Keep it Local.”) Similarly, if the state government is supporting school choice vouchers with income or sales tax revenue, that means schools as a whole rely less on local property taxes.
Because property taxes are mostly imposed by local governments, often very small ones, like towns or special districts, they often lead to massive inequality. Consider Connecticut, where homeowners in poor Bridgeport pay nearly twice the tax rate as those in nearby, rich Westport, and homeowners in super-rich Greenwich pay even less. The local property tax effectively punishes people for living near poorer people, as sharing a city or town with poorer people means that your tax rates are higher and your public services are less well funded, as Zach Liscow has shown.
Measures like those in North Dakota or school voucher systems aren’t my favorites, but their willingness to abandon the hyperlocalism of American property taxation is salutary. A good property tax revolt would lean into this spirit, seeking to limit the extent to which the property tax is assessed by small and unequally rich jurisdictions, and instead increase the taxing authority of bigger jurisdictions like counties or the state itself. Doing so would make the property market more dynamic, mitigating the tax penalty for living in economically mixed areas, and would reduce inequality. That would be the kind of revolt that one could—unironically—support.
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