Why Some Cities In Low-Tax States Have The Highest Property Tax Rates

Houston, Texas has some of the highest effective property tax rates in the country.
Image by David Mark from Pixabay
The pandemic has allowed more people to work from home and surveys show that many want to make their remote worker status permanent. That creates an opportunity for some folks living in higher tax states because of their jobs to move to lower-tax areas.

Surprisingly, many of the large cities with the highest effective property taxes are in Texas. And places like Washington, D.C., and Denver are large cities with some of the lowest rates. It goes to show that cost-of-living and a low- or high-tax reputation all need to be take in context when it comes to housing.
Property taxes are the top source of revenue for most local governments and are an important factor in considering total housing costs. But property tax rates can be tricky property values are just as important as the tax rate applied to them. Plus, the rate on your bill isn’t directly applied to your total home value. Localities give varying discounts for homeowners before applying that property tax rate. That’s where this idea of an “effective” tax rate comes in, meaning that what you actually pay in taxes is compared against your total home value.

For example, the real estate investing website Rooftstock recently ranked large, mid-, and small-sized cities based on their effective property tax rate and found that Milwaukee has the highest rate among large cities (populations of at least 350,000). Milwaukeeans pay a median $3,122 in property taxes on a median home value of $133,600, for an effective property tax rate of 2.17%.

Major cities in Texas also recorded some of the highest effective property tax rates, accounting for seven of the top 11 cities, according to Roofstock.
15 Highest Effective Property Tax Rates Among 55 Largest U.S. Cities

Cities in Texas dominate the list of large U.S. cities with the highest effective property tax … [+] rates.
Graphic courtesy of Roofstock
When it comes to the lowest effective property tax rates among large cities, the list may surprise you. Places in regions with high cost-of-living reputations (like San Francisco and Washington, D.C.) have some of the lowest effective property tax rates in the country of less than 1%.
15 Lowest Effective Property Tax Rates Among 55 Largest U.S. Cities

Large cities in the West generally top the list of those with the lowest effective tax rates.
Graphic courtesy of Rooftstock

Of course it goes without saying that at the end of the day, $3,100 in property taxes in Milwaukee is still a heck of a lot lower than the more than $7,600 a year in San Francisco property taxes. But that goes back to housing value. Housing markets on the lower-tax list tend to have higher home values than the ones on the higher-tax list. Meanwhile, most of the actual property taxes paid on the low-tax list are comparable or lower than the high-tax list — even though home values on the second list are much higher.
This no accident. Local governments still need to pay for things like roads, schools and parks, and the cost of those things generally doesn’t vary too much by housing market. So, places that have lower home values may have higher-than-average property tax rates so those governments can get the revenue needed to help pay for resident services.
Conversely, governments operating in higher-cost real estate markets can afford to have lower rates.
There are always nuances to consider though. Colorado Springs, which has the lowest effective property tax rate of any large city, doesn’t necessarily top the list because of its housing market. The city has a tax-averse, small government culture and famously during the Great Recession slashed its budget rather than raise revenue to pay for services. For a time, more than a third of streetlights weren’t turned on, employees (including firefighters and police) were laid off, garbage pick-ups were skipped, and lawns and medians were left un-mowed, among other cutbacks.

In short, living in a more affordable real estate market doesn’t necessarily mean paying lower property taxes. It helps to consider the effective tax rate — and what you’re getting for your dollar.