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Everything Is Bigger In Texas, Including Your Property Tax Bill

In a state that prides itself on being the most business friendly, Texas pays the fifth-highest property taxes in the nation. As taxes are skyrocketing over a short period of time, property owners and even the Texas legislature are starting to view appraisals as one of the state's biggest issues.

Houston Skyline
Houston skyline

Statewide, between 2005 and 2014, property taxes rose 2.5 times faster than median household income. Multifamily is bearing the brunt particularly hard. Multifamily units across the state have seen increased valuations of 25% to 30% for three years now. Those costs are being pushed on to tenants.

Everything Is Bigger In Texas, Including Your Property Tax Bill

As the graph above shows, Houston has it the worst, particularly the area's commercial real estate. In the past four years, Houston's CBD has seen a 100% increase in commercial property valuations. Property taxes used to be around 20% of operating expenses but have risen to more than 50%

Senator Paul Bettencourt
State Sen. Paul Bettencourt

The problem has become a top priority of Lt. Gov. Dan Patrick. He's formed the Senate Select Committee on Property Tax Reform & Relief, led by State Sen. Paul Bettencourt (pictured).

Sen. Bettencourt has been traveling around the state to hear about residents' and property owners' issues with property taxes. In Arlington, 500 people tried to cram into the hearing. Houston had 600 residents. Sen. Bettencourt says people are being taxed into awareness.

The problem comes down to appraisals. Houston Building Owners and Management Association (BOMA) president Tammy Betancourt (no relation to the senator, we promise) says there is no oversight, especially in Houston, and she's concerned bad things are bound to happen. Furthermore, its board of directors is comprised of members of organizations that collect taxes.

Mary Stanton, Brett Williams and Tammy Betancourt from Houston BOMA in DC

Harris County's chief appraiser, Sands Siefer, has found himself looking at lawsuits. BOMA and property owners are contesting the way appraisals are decided, saying they're being based off sales prices, which reflect future earning potential. Taxing based on the commercial sale price is like trying to tax things that haven’t happened yet, Tammy (right, with JLL's Mary Stanton and PMRG's Brett Williams in DC) tells us.

The law states appraisals must be based on a uniform and equal basis. Factoring in future earnings brings in a speculative aspect to appraisal that she believes is leading to incorrect conclusions. These practices have resulted in lawsuits from nearly every piece of Class-A real estate in Houston. 

The impact of these skewed appraisals raising taxes is very real. Dow Chemical and Amazon testified on the impact of local property taxes when selecting locations. Dow chose Louisiana for its new billion-dollar facility and Amazon chose North Texas over Harris County for its new 1M SF fulfillment center, because of the tax situation in Harris County.

Everything Is Bigger In Texas, Including Your Property Tax Bill

City officials says the valuations are fair, claiming the current system rewards commercial property owners who hire lawyers to argue their properties are worth less than county officials contend, further draining the already low city coffers. Sands claims over 20% of HCAD’s budget goes toward litigation.

At a recent city council meeting, Mayor Sylvester Turner lamented a $16M drop in property tax collections during the budget year that just ended. Still, comptroller stats show Harris County has gotten 45% more revenue in the past three years.

Sands also contests Tammy's claim that appraisals aren't uniform. The Texas Comptroller's 2015 property value study found that almost 75% of the properties sampled have appraisal ratios within 10% of the median. Residential properties were appraised at a median level of 99% of market value, and commercial property was appraised at a median of 100%, which is the goal, he tells us.

Mayor Turner says the loss of tax revenue resulting from lower valuations is being pushed on to residential homeowners who lack the means to fight valuations like commercial property owners. However, the data indicates valuations have drastically increased no matter what the property type. 

Just take a look at residential rates. Home prices in San Antonio have had moderate increases of 10%, but home prices in DFW are up 22% to 24%, Austin is at 25%, Houston is an an astonishingly high 29%. 

Rapidly rising tax bills are a huge problem when paychecks aren't following suit. The imbalance threatens the growth that Texas has relied on.