Get ready for your property tax appraisal to dramatically increase

Many Texans will see their homestead appraisals rise this year, according to the Texas Association of Appraisal Districts (TAAD). Transplants are departing states such as New York and California and moving to the likes of Texas and Florida — while the first two each lost a congressional seat in the 2020 Census, the Lone Star State gained two and the Sunshine State gained one.

Population growth, broadly, means the state is an attractive destination due to a variety of factors. These include anodyne features such as weather and natural assets like beaches, parks, and lakes. But it’s also influenced by political and economic factors like a business-friendly regulatory environment and tax codes.

Texas is renowned for its lack of an income tax. It’s not the only state without one and not the only arrow in its quiver, but that fact is often cited by businesses and individuals alike who choose to relocate here.

But this influx of new transplants, especially to concentrated areas like Austin and other metroplexes, drives property values up to directly exacerbate the tax burden these same individuals often fled from in their native states.

According to the Texas Real Estate Research Center at Texas A&M University, the average listed home price increased 21 percent from January to December of last year. Compared to January 2019, that is a 47 percent increase — but it decreased some from December 2021 to January 2022, dropping about 4 percent.

The data also shows increases by metropolitan area:

Austin-Round Rock: 35.4%
Sherman-Denison: 24.5%
Dallas-Fort Worth: 23.6%
San Antonio-New Braunfels: 18.4%
Houston-The Woodlands-Sugarland: 15.2%
El Paso: 14.4%
Amarillo: 13.8%

One aspect driving listed prices northward is the waning supply. A decade ago, there were five times the “months of inventory” available than at the beginning of this year. Months of inventory means the number of months it’d take for the current supply of homes listed to sell at current sales pace. As of January, there is only 1.2 months of inventory.

Local zoning regulations also feed into the price homebuyers see which can accentuate variation between localities. For example, Austin has strict zoning regulations which is among the reasons why it is so expensive while Houston’s lax zoning ordinances put downward pressure on costs of homebuilding compared with its contemporaries.

Texas, without an income tax, leans heavily on property taxes to fund local governments of all stripes. School districts account for the majority of property taxes collected followed by cities and counties, respectively.

The property tax system has two components: the tax rate and the appraisal.

“The Texas real estate market is growing as fast as we have ever seen it in the state’s history,” said Alvin Lankford, president of TAAD and the chief appraiser for the Williamson County Appraisal District. “We have all seen the countless stories about people moving to Texas from other states. This increase in population contributes to a shortage of homes available and to the increase in prices paid for homes.”

Williamson County, Lankford’s appraisal territory, is seeing between a 40 and 50 percent increase in property values as its population growth explodes — one of the fastest growing counties, if not the fastest, in the state.

Lankford also said that while typically the largest driver of price is supply and demand of homes, this year it’s the cost of building materials and their delay of shipment. “Builders have been charging more for houses, right now about 20 to 25 percent more,” Lankford said.

The disruption of the supply chain, which stems mostly from pandemic shutdowns, makes it harder and more costly to secure the raw materials necessary to construct buildings.

Lankford added that property tax bills will not necessarily correlate proportionally with appraisal increases, pointing to the 10 percent cap on assessed values for homestead-exempt properties. In layman’s terms, that means the appraisal may only increase 10 percent from the previous year if the property has a homestead exemption, a property tax discount from the state available for primary residence homes.

But that doesn’t apply to all other properties.

A county appraisal district assesses the value of every property in their district, then notifies the property owners who may protest that assessment. Ultimately, an appraisal is settled on and that macro-level data is sent to the local elected officials at the county, municipality, school district, and specialty districts.

With the appraisal information in front of them, those officials then decide where to set their respective tax rates. By law, school districts are limited to 2.5 percent increases without voter approval while the others are limited to 3.5 percent increases — each a product of the 2019 legislature’s property tax reforms.

And after the legislature closed the disaster loophole that allowed localities to abridge the new limits without voter approval because of the pandemic, the coronavirus disaster orders now stretching into their third year will no longer provide cover for the kinds of rate increases approved during 2020 and 2021 — all while unemployment skyrocketed and taxpayers’ ability to pay waned.

Appraisal districts and local officials like to do-si-do around the blame for rising tax bills, pointing fingers at the other when criticized.

Both play a role, but it’s the officials who choose the rate and order bond elections when they occur. The no-new-revenue rate is an option available to them, the rate at which no additional levels of taxes from the previous year are collected save for any new property added to the rolls. 

Counties, due to their low number of officials making up the body relative to councils and school boards, possess a unique quirk the others do not. State law requires a quorum to pass a tax levy, and if no quorum is present for the scheduled tax rate vote, the no-new-revenue rate (previously called the effective rate) is triggered automatically.

Lubbock County Commissioners Jason Corley and Chad Seay pioneered that strategy in 2019 when the body tried to approve an 8 percent property tax increase before the legislature’s new limits went into effect. Instead of showing up and being outnumbered, they played hooky and triggered the no-new-revenue rate. Harris County Commissioners Jack Cagle and Steve Radack replicated this strategy a month later.

Such a tactic is unlikely to work at other political subdivisions because it’d take more individuals to break up a quorum. But there is a small track record for it working when deployed.

Individual property owners, meanwhile, may protest their home’s valuation with the appraisal district.

James Quintero, policy director for the Texas Public Policy Foundation’s Government for the People project, said, “Soaring valuations don’t have to mean big tax increases; but it’s incumbent upon local officials to adopt lower tax rates and enact other taxpayer protections.”

“It’s critical that property owners engage the process to protect their finances. That means making sure your primary residence is covered by a homestead exemption, preparing to protest your property tax value, and reaching out to local officials to press for smart policies, like adopting the no-new-revenue tax rate, utilizing zero-based budgeting, and performing a third-party efficiency audit. Now is the time for Texans to speak up and take action.”

After lowering the caps on tax increases in 2019, many in the legislature now set their sights on appraisal reform. And now, they have Governor Greg Abbott’s explicit support of reform in some fashion. Part of his re-election campaign’s property tax plan includes increasing the transparency and efficiency of the appraisal process.

He also aims to anchor the taxable value of a newly purchased home to a lower value between the price paid by the buyer and the appraised value. Both House Speaker Dade Phelan and Lt. Governor Dan Patrick have each called for appraisal reform, but the ultimate form it takes will not be seen until the conclusion of the next legislative session in 2023.

Property owners will begin to receive their appraisal notices by mail in April and have until May 16 or 30 days after they receive their notice, whichever is latest, to protest their valuation.

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