This op-ed on the disparities in property valuation in The New York Times is attracting attention and commentary, for good reason. The editorial finds that nationwide systemic valuation errors disproportionately affect low-value residential properties, shifting property tax burdens towards those owners and away from owners of higher-value residential properties. Racial disparities in wealth and homeownership, and the lingering effects of redlining, mean that this tax shifting effect inevitably has a disparate impact on black communities.
The editorial draws heavily on a University of Chicago study which can be found here. Or you can access the analysis specific to Hennepin County, here.
However, when you start to take a close look at the Hennepin County data, some gaps in the analysis become apparent. For starters, the study is based on data from 2007 to 2016. The conclusions drawn by the study are therefore already outdated for five years (despite the study using language like “the last two years”).
One would assume that not much is likely to change in five years, especially if it is a systemic issue, so whatever this study found is likely still of concern. But even the data used by the study reveals that this is not a solid hypothesis.
This is a gif of the study’s âsales ratio by decile by yearâ graph, which can be found in Appendix 7.3. The sales ratio is the ratio between the estimated value of a property and the selling price. Along the x-axis are the values ââ/ prices, and the y-axis is the ratio of sales. As the charts reveal, Hennepin County apparently had huge disparities in the sales ratio between 2008 and 2011, but the trend then reversed.
In 2014, the graph reversed. And in 2016, as the study itself acknowledges: âthe most expensive homes (the top decile) were valued at 85.7% of their value and the cheapest homes (the bottom decile) were valued at 77 , 1%. In other words, the cheapest homes were rated at 0.9 times the rate applied to the most expensive accommodation.
That is, the study found that in 2016, the sales ratio in Hennepin County did not show regressivity in property ratings and that in fact, the ratings slightly favored properties in Hennepin County. lesser value. Everything that was wrong with real estate appraisals seems to have been fixed.
But across the data set, massive valuation issues in 2008-2011 outweigh the more moderate apparent escalation shown in more recent years. As a result, the median sell ratio across the data set reflects valuation disparities which, as far as the data shows, ended 7 years ago. The median data appears to be what the New York Times used for the maps in their editorial.
Looking at the Minneapolis 2021 appraisal report, generally speaking, the city appraiser’s office appears to be reaching sales ratio figures of around 95% to 96% across a wide range of real estate values, and in a consistent manner from one district to another. There may be valuation anomalies in the low-priced properties hidden in this data, but it seems unlikely that they approach the magnitude suggested by the historical data used by the University of Chicago study or The Times editorial map.
The analysis and conclusions of the University of Chicago study may also have other shortcomings. For example, the study claims to assess effective property tax rates. But it’s not clear whether the study included the Minnesota property tax refund as part of its calculation and analysis of the effective property tax rate. The reimbursement of property tax considerably reduces the regressivity of property taxes:
Although residential property tax charges (after PTR) are regressive, they are significantly less regressive than sales taxes or âall other taxesâ.
2021 tax impact study, p. 33 (PDF)
Identifying and addressing systemic biases, particularly in tax matters, is imperative if we are to achieve equity goals. And there is undoubtedly a systemic bias in the valuation of properties, especially in appraisal calls. But it’s also important to be critical about the data we use to diagnose issues so that we can accurately identify the things we need to focus on and sort out.
In light of the seemingly conflicting evidence, both in the more recent data used by the study and in the 2021 assessment report, I would like a similar analysis to be done on more recent data before concluding that the 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 like to engage the evaluator in a conversation about what changed between 2008 and 2016, and ask for confirmation that the improved evaluation methods have continued since 2016 and can be assured to continue.
If you own a property in Minneapolis and believe that your property appraisal is incorrect, the quickest and most informal way to fix it is to contact the appraiser identified on your appraisal notice. There are other appeal options, which are detailed on the assessor’s website.