A large downward shift in the burden of paying for the cost of running governments and funding public education is underway. Market forces, good old supply and demand, have driven up housing prices. Homes on the lower rungs of the price ladder have risen in value the most. In one case a Concord home purchased for $204,000, despite no taxable improvements, sold for $300,000 a year later.
The rapid escalation in the value of modest homes and condominiums is translating into bigger property tax bills for their owners. Meanwhile, the value of commercial and industrial real estate and high-end homes has increased only modestly if at all.
The shift is statewide, but its impact is phased in because it depends on when municipalities readjust property values. It can, however, already be seen in the latest quarterly tax bills sent by the city of Concord. The value of so-called starter homes and condominiums rose by double digits in a single year and in some cases, by as much as 50%.
The state Department of Revenue Administration, which oversees municipal taxation, has not completed its analysis of data collected during the past year but some things are obvious. The housing shortage and pandemic-driven migration out of urban centers drove up demand for New Hampshire housing that was already in very short supply.
”We have seen a dramatic increase in property values, mostly on residential property,” said James Gerry, director of the agency’s municipal and property division. ”Manchester and Nashua are still the hottest real estate markets in the country and in October, Concord was number 13. There has been dramatic growth in value on the residential side and not so much on the commercial side,” Gerry said.
Despite the pandemic and the work-from-home trend, the value of Concord’s commercial and industrial property increased by 4%. Residential values, however, increased by 14% overall, a shift of the tax burden from one class of property to another.
“If one base outgrows another in value that base will pay more,” Gerry said. “I can confirm, from anecdotal evidence, since we haven’t done the analysis yet, that on a total basis we see that the properties that saw a really dramatic increase were low-end to mid-level homes, say below the $500,000 range.”
Concord’s assessing department went to great lengths to explain the situation on its website. Under the heading “What’s happening in The City’s Real Estate Market” its assessors offer a primer on real estate assessment and taxation using real-life examples that include photos of recently-sold properties. The second example is a modest home on the city’s west side that was purchased in July of 2019 for $204,000 and, with no improvements, sold 13 months later for $300,000. The new owner of that Penacook Street home will pay $150-plus more per month in property taxes than the previous owner.
What the website doesn’t show is the impact of such sales on the owners of similar properties. Concord adjusts property values annually, so when the value of one type of real estate changes with respect to others bills soon reflect the change. The assessment on a similarly modest home in the same west side neighborhood went up by tens of thousands of dollars in one year though no taxable improvements were made. The increased assessment raised that taxpayer’s bill by nearly $70 per month. Similar tax increases, driven by the demand for affordable housing, presumably hit the owners of most modest homes and condominiums.
Concord, for federal Census purposes, is divided into 12 blocks. Among the information the Census provides is the average annual household income of each block. In 2014, household incomes for Concord blocks ranged from $33,000 on one Heights block to just under $99,000 for the neighborhood above White Park. A cursory comparison of a block’s household income to the assessments on its homes indicates that the owners of modest homes tend to have modest incomes. Those incomes may not easily stretch to pay the tax bills on the newly inflated value of those homes, especially if coupled with drastic winter increases in the cost of heat and power.
New Hampshire has long had a regressive tax structure. “Who Pays – New Hampshire,” a 2018 report by the national Institute on Policy and Taxation, shows the top 1% of the state’s earners paid 3% of their income in state and local taxes, the middle 20% paid 8.1%, and the bottom 20% 9.1%. A big increase in the tax bills on lower-end homes, along with property-tax driven increases in rents, will make the system even more regressive.
It’s too soon to say what the ramifications of the tax burden shift will be. Some homeowners may leave the state and be replaced by people with greater means. That has happened in other real estate markets where the slow fire of gentrification burns. Others will scrimp and find a way to pay. Bigger tax bills sent to a majority of voters, since most people live in homes valued at less than a half-million dollars, could make it harder to pass school and municipal budgets. The inequality between wealthy and poor school districts could increase.
Doug Hall, a former state representative and director of the now-defunct Center for New Hampshire Public Policy Studies, is the treasurer of the New Hampshire School Funding Fairness Project. The group is working to make paying for public education more equitable for students and taxpayers alike. Hall, a veteran of more than four decades of battles over school funding, summed up the situation this way:
“We, the people of New Hampshire, have chosen to distribute the burden of local taxes in proportion to the value of your real estate. We could choose some other basis – maybe all assets or income – but we haven’t. The recent and future changes in your property taxes are exactly what you have asked for if you support the property tax. If you are unhappy, then maybe you should help us choose a different tax base.”
(Ralph Jimenez of Concord is a member of the Monitor’s editorial board.)