House Prices Could Plunge Under New Property Tax Proposal

A new Nebraska bill to alleviate the property tax burden on the state's homeowners could end up bringing down home prices, experts told Newsweek.

Earlier this month, Senator Eliot Bostar of Lincoln, a Democrat, introduced a new bill, LB1183, which would consider a local county's assessed property valuation the same as an offer to purchase that same property for the amount they valued it at, if the homeowner decides to sell.

The proposed bill, which would give Nebraska homeowners 90 days to accept the offer by the local county, "puts downward pressure on property valuations—and therefore property taxes—by holding the entity creating the valuation accountable to the assigned value," Bostar told Newsweek.

"The bill creates incentives to ensure that property valuations don't exceed market value, which I believe is common," he added. "Property tax levy rates are statutorily limited, which leads to property tax increases being driven by increasing valuations. My legislation introduces market derived accountability into what is currently an opaque and bureaucratic system."

Real estate law expert Frank Ferruggia told Newsweek that the proposed bill, if passed, could be "a substantial hammer that taxpayers could yield on the financial authorities."

But other experts told Newsweek about their concerns about the impact of the bill.

"The plan faces several challenges," Assaf Harpaz, a visiting assistant professor at Drexel University's Thomas R. Kline School of Law, told Newsweek.

"The first remains valuation, which is always a concern when assessing property taxes," he continued. "The assessed values for determining a property's tax liability may not be the same as its appraised or fair market values. Second, if the assessment is treated as an offer, this raises a new set of questions, most notably—whether the county is able to purchase the properties in question if owners decide to sell."

According to Harpaz, this may create an incentive to decrease property valuations so that owners are discouraged from selling. Property taxes in Nebraska are calculated based on the market value of the property, which is estimated by local county assessors.

Andrew Hayashi, an expert in tax law, tax policy and behavioral law and economics at the University of Virginia School of Law, is worried that the new bill might cost taxpayers more than what residents have to gain, with local counties ending up shouldering an enormous burden.

"Property assessments are always imperfect, but this proposal has significant issues. First, it makes assessment errors a bigger problem," he told Newsweek.

"Consider a county with a 1 percent property tax rate. If the home is over-assessed by $30,000 then the homeowner will have to pay $300 extra in tax," he continued. "But under this proposal, the government would have to overpay for the property by $30,000. That loss will have to be made up by $30,000 in cuts to services or raising $30,000 in taxes on other people."

"People generally know more about the condition of their homes than the government does, which means that homeowners will win when their homes are under-assessed and the government will lose by having to buy over-assessed properties," he said. "And when the 'government' loses, that just means that taxes on other people will have to go up."

Todd Sinai, professor of real estate and business economics and public policy at the Wharton School at the University of Pennsylvania, told Newsweek that Bostar's bill would lower property taxes for homeowners' whose properties have been over-assessed compared to the market value, but the overall municipality tax bill would stay the same, though readjusted.

"The way in which policy proposals like Nebraska's one can have any effect is that it can change who is paying more or less property taxes, not the overall sort of average tax bill of the municipality," he said.

Property taxes have increased across the country, mostly because people's homes have increased so much in value. On a national level, home prices almost doubled in the decade between 2011 and 2021, while state and local property tax revenue increased by 46 percent during that time, according to Hayashi.

Nebraska currently has one of the top 10 heaviest property tax burdens in the country when compared to the mean income in the state, according to website SmartAsset. On average, the state's property tax rate is 1.61 percent, though in some of the largest counties it can go up to 2 percent.

The state's average home value was $245,663 as of December 31, according to Zillow, up 4.6 percent compared to a year before.