This editorial on disparities in property valuation in the New York Times is drawing attention and commentary, for good reason. The editorial finds nationwide, systemic valuation errors disproportionately affecting lower-value residential properties which shifts property-tax burdens towards those property-owners and away from higher-value residential property owners. Racial disparities in wealth and homeownership, and the persistent effects of redlining, means that this tax-shifting effect inevitably has a disparate impact on Black communities.
The editorial relies heavily on a University of Chicago study that can be found here. Or you can drill down to the Hennepin-county-specific analysis, here.
When you start to take a close look at the Hennepin County data, however, some shortcomings in the analysis become apparent. To begin, the study relies on data from 2007–2016. So conclusions that the study draws are already five years out of date (despite the study using language like “the last two years”).
One might assume not much is likely to change in five years, especially if it is a systemic problem, so anything this study found is probably still a concern. But even the data used by the study reveal that not to be a sound assumption.
This is a gif of the study’s “sales ratio decile by year” chart, found in Appendix 7.3. The sales ratio is the ratio of a property’s assessed value divided by the sale price. Along the x-axis are values/prices, and the y-axis represents the sales ratio. As the charts reveal, Hennepin county apparently had massive disparities in sales ratio between 2008 and 2011, but then the trend reversed.
By 2014, the chart inverted. And by 2016, as the study itself acknowledges: “the most expensive homes (the top decile) were assessed at 85.7% of their value and the least expensive homes (the bottom decile) were assessed at 77.1%. In other words, the least expensive homes were assessed at 0.9 times the rate applied to the most expensive homes.”
That is, the study found that by 2016 the sales ratio in Hennepin County did not demonstrate regressivity in property valuations, and in fact valuations slightly favored lower-valued properties. Whatever had been wrong with property valuations seems to have been corrected.
But in the data set, the massive valuation problems in 2008—2011 outweigh the more moderate apparent progressivity shown in the more recent years. As a result, the median sales ratio across all the data reflect valuation disparities that, insofar as the data show, ended 7 years ago. The median data seem to be what the New York Times used for the maps in their editorial.
Looking at the Minneapolis 2021 Assessment Report, broadly speaking, the city assessor’s office appears to be hitting sales ratio numbers of about 95%—96% across a wide range of property values, and consistently from ward to ward. There may be valuation anomalies in lower-priced properties hidden in this data, but it seems unlikely they approach the magnitude suggested by the historical data used by the U of Chicago study, or the map in the Times’s editorial.
There may also be other shortcomings with the U of Chicago study’s analysis and conclusions. For example, the study claims to evaluate effective property tax rates. But it is not clear whether the study included Minnesota’s property tax refund as part of its calculation and analysis of the effective property tax rate. The property tax refund significantly reduces the regressivity of property taxes:
Although residential property tax burdens (after PTR) are regressive, they are noticeably less regressive than either sales taxes or “all other taxes.”2021 Tax Incidence Study, p. 33 (PDF)
Identifying and addressing systemic bias, particularly in matters of taxation, is imperative if we are to achieve equity goals. And there is unquestionably systemic bias in property valuation—particularly in valuation appeals. But it is also important to be critical about the data we’re using to diagnose problems so we can accurately identify the things we need to focus on and address.
In light of the apparently contradictory evidence, both in the most recent data used by the study and in the 2021 Assessment Report, I would want to see a similar analysis performed on more recent data before concluding that the specific problem highlighted by the U of Chicago study—systemic overvaluation of low-value properties—persists as a problem in Minneapolis.
I would also engage the Assessor in a conversation about what changed between 2008 and 2016, and ask for confirmation that the improved valuation methods have continued since 2016 and can be ensured to continue.
If you’re a Minneapolis property owner and believe your property valuation is incorrect, the quickest and most informal way to have it addressed is to contact the assessor identified on your valuation notice. There are further appeal options, which are detailed at the Assessor’s website.
There’s another problem with the effective tax rate part of the analysis even before getting to the question you correctly raise about the refund. Namely, what about the homestead exclusion? The homestead status gets confounded with the property value.
Starting an evaluation of home values in 2007 seems inherently destined for trouble. Even if assessors were perfect at their jobs, no one was sure what houses (and thus mortgages) were worth for like the next three years.
Pointing out massive disparities in 2008-2011 while not acknowledging the crippling housing crisis that pulled the word into a global recession is disappointing at best, intellectually dishonest at worst. No assessor could foresee what was going to happen to housing values, let alone accurately peg assessments.
How many lower valued houses in Minneapolis are really being assessed at too high a value when that segment of the market is on fire?