Thursday, January 31, 2008

Are Property Taxes High in the Pittsburgh Region?

The state legislature is quite busy these days on yet another effort to try and reduce local property taxes. Everybody would like to pay less property taxes, but are local property taxes really high compared to other places?

The answer is: it depends on how you look at it.

The median property tax paid on owner-occupied houses in the Pittsburgh metro area in 2006 was $1,987. That's lower than 24 of the top 40 regions in the country, so in raw dollar terms, people here pay a below-average amount on property taxes compared to competitor regions.

However, housing values are also much lower here than in other regions -- in fact, Pittsburgh ranked 39th (i.e., next to lowest) among the top 40 regions in the median value of owner-occupied housing in 2006. By comparison, in Boston, the median property tax was $3,745, almost double what it is in Pittsburgh. But the median home value in Boston was almost quadruple the value in Pittsburgh. As a result, property taxes as a percent of home value in Boston are only half of what they are here.

In fact, the Pittsburgh Region had the 6th highest property taxes as a percent of home value among the top 40 regions. Only Milwaukee and the metro areas in Texas (Austin, Dallas, Houston, and San Antonio) were higher.

This problem is exacerbated for people who move to Pittsburgh from other places. They usually think property taxes are extremely high here because they are able to buy a bigger, better house here than they had elsewhere and that results in much higher property taxes.

Let's take Boston again as an example. A home of median value there is $404,000. If a person who owned a $400,000 home in the Boston region moved to the Pittsburgh area and bought a home of median value here, they would only pay $111,000 for it, and they would probably only pay half as much in property taxes on it as they paid on their house in Boston. But it's more likely that they'll use the proceeds on the sale of their Boston home to buy a $400,000 home here. They'll get a lot more house than they had in Boston, but they'll also probably pay twice as much in property taxes as a result.

However, the fact that property taxes are high in comparison to home value doesn't tell you whether people can afford them or not. A better measure of affordability is how property taxes compare to income. If you compare the median property tax paid in each region to the median income of homeowners, the Pittsburgh Region is much closer to average -- we rank 17th among the top 40 regions on that measure. That's still a little high, but much closer to the average among other regions.

Why do we look so much better when you compare property taxes to income rather than home value? Because homes here are so much more affordable than in other regions. The median-priced home here is only about double the median income, whereas in most other regions, the median-priced home costs 4 times the median income. In Los Angeles and San Francisco, the median-priced home is over 7 times the median income.

The bottom line is that property taxes are somewhat less affordable in the Pittsburgh Region than in other places, but the housing here is dramatically more affordable. Although nobody likes paying the tax man more than they have to, it's no fun paying the mortgage company more either. It's likely that if you added mortgage costs and property taxes together, you'd find that the total cost of a home of equivalent quality is still much cheaper here than in most other regions. And that's a powerful economic advantage for the Pittsburgh Region.


Anonymous JBrelsford said...

I would rather pay my mortgage company more money. By doing so I am capturing part of that payment through the reduction in principal. Payments to the "tax man" have no direct return to me. Additionally, by your logic (the combined cost of price and taxes maintains parity with other regions with lowever taxes) the tax man captures a greater percentage of the appreciation of my home here than in another region. So ask yourself the question what are we (indirectly) receiving for our higher tax burden? Is it worth it?

8:56 AM  
Anonymous Anonymous said...

I think the question is how total governmental spending, including schools, per household compares to other regions. If the spending is essentially the same then the tax rate will be higher only because the value of homes is lower than average.

2:37 PM  
Blogger Harold D. Miller said...

Total local government spending is actually below average on a per capita basis. See my post from last September:

2:45 PM  
Anonymous Anonymous said...

when you take the property taxes in pitsburgh w/ the 3% wage tax, the city is way higher than other cities. where does all the money go?

2:15 PM  

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