While property taxes in Colorado continue to rise from year to year, what property owners pay in remains among the lowest tax bills nationally, with an effective tax rate of 0.45%. The only states with lower tax rates are Indiana, Wyoming, Georgia, North Carolina, New York and Montana.
Still, state lawmakers approved a bill in the last few weeks of the legislative session that seeks to provide some homeowners relief.
Opponents of that measure may seek to undo that new law at the ballot box this fall, however.
The new law, signed May 14 by Gov. Jared Polis, does not lower property taxes but slows the pace at which they are climbing — an estimated $1.3 billion in relief in the first year alone. The law will help avoid property tax spikes for homeowners by establishing a cap of 5.5% for most local property taxes.
“Businesses and individuals across Colorado have faced historic rate increases that threaten our economic growth on a broad scale, from driving up the cost of doing business to exacerbating the housing affordability crisis,” Loren Furman, the president and CEO or the Colorado Chamber of Commerce, said in a written statement. “This solution is a balanced approach for critical property tax relief while protecting voter-approved bonds for housing and infrastructure needs across the state.”
Colorado’s property tax rates have remained low thanks in part to a constitutional amendment passed in 1982 called the Gallagher Amendment. The amendment led to billions of dollars in savings for homeowners. It has also strained local budgets that rely on property taxes to stay afloat.
The amendment once required 55% of property taxes be raised from commercial property owners, shielding homeowners from rising tax bills. Colorado voters repealed the amendment in 2020, but the portion of a commercial property that's taxable in the state remains more than four times bigger than for residential property.
In the Denver metro, average property taxes increased by nearly 16% in 2023, rising from $3,545 in 2022 to $4,100 in 2023, according to a Business Journals analysis of data from Attom Data Solutions LLC, a database management company based in Irvine, California. Nationally, property taxes increased on average at a rate of 4%.
The gains aren't solely due to the surge in home prices. The struggles of the commercial real estate market, especially for office properties, is also expected to contribute to an increasing property tax burden for homeowners.
The topic has dominated headlines in Colorado, prompting a special legislative session and bipartisan commission to try and brainstorm ways to provide tax relief to homeowners.
Nationally, $363.3 billion in property taxes were levied on single-family homes in 2023, up 6.9% from $339.8 billion in 2022, according to an analysis of 89.4 million U.S. single-family homes. That increase is nearly double the 3.6% growth rate seen in 2022 and is the largest hike in the past five years.
The average tax on single-family homes increased 4.1% in 2023, to $4,062.
From changing home values and new home construction to tax changes and the sample of properties analyzed, there are several reasons average property tax bills can change from year to year.
Attom CEO Rob Barber said the reason behind substantial property tax increases for homeowners can vary widely from one area of the country to another. Those factors can include increased expenses for local government operations and salaries for public school employees (often mandated by union agreements), maintaining or building new schools and government facilities, and inflation.
Still, Barber noted that even with the average tax burden up nationally in 2023, the rate of increase was relatively moderate compared to monthly inflation rates experienced throughout 2022 and 2023.
Effective property tax rates increased in much of the country last year because of a slight year-over-year decline in overall home values and higher tax bills, with Attom finding the average U.S. home value dropped 1.7% in 2023. That decrease in values, along with rising taxes, resulted in a small increase in effective rates.
States with the highest effective property tax rates are in the Northeast and Midwest, led by Illinois (1.88%), New Jersey (1.64%) and Connecticut (1.54%). New Jersey also has the highest average property tax in the nation, with an average single-family home property tax of $9,488 last year. That's almost 10 times the average of $989 in West Virginia, which had the nation’s lowest average levy last year, according to Attom.
Will the commercial real estate market affect residential property taxes?
The recent uptick in residential real estate taxes comes as many aspects of the commercial real estate market are facing upheaval — office space in particular.
Assessed values on office buildings have been successfully challenged in Denver and many U.S. municipalities recently, resulting in significant value reductions and a much lower tax bill for those property owners. As the commercial real estate market goes through a reset, it prompts questions about whether local jurisdictions are having to become more reliant on residential owners' property taxes, at least in the short to medium term.
Barber said fluctuations in residential levies often are contingent on shifts in the local tax base.
"These flow from new developments or influxes of new businesses, thereby broadening the tax base and mitigating potential tax escalations," he said.
"Conversely, downturns may ensue due to vacancies in retail or office spaces resulting from business closures or relocations. This typically results in the depreciation of commercial properties, consequently reducing tax liabilities for these establishments and heightening the tax burden toward homeowners."
Looking ahead, it's possible municipalities will look to residential owners to shoulder more of the property tax burden as the commercial real estate sector adapts to evolving work and shopping habits, Barber said.
"In the foreseeable future, governing bodies may encounter challenges in constraining property tax hikes for homeowners, particularly in areas grappling with substantial vacancies in shopping districts or underutilized office spaces," Barber said, adding that impact will vary depending on location.
He said when commercial properties see tenant turnover, those owners may qualify for property tax reductions based on assessments tied to rental income from retail or office leases. That subsequent shortfall in revenue requires actions to make up for it, often leading to bigger tax hikes for homeowners.
Danielle Hale, chief economist at Realtor.com, in a phone interview said home prices have gone up so much in recent years that even if government bodies do adjust the rate levied on residential property owners, most are still collecting more on a dollar basis, which means property owners are having to shell out more.
She said in markets where the commercial tax base is a substantial share of the market, those areas are likely seeing more of the tax burden shift to the residential side of the ledger.
"Given the weakness in the commercial real estate market, that's not likely to resolve very soon," she added. "I think that’s going to put pressure on local governments to either cut back on spending or shift more of the tax burden to individual tax owners."
How do taxes affect the housing affordability picture?
While property taxes — and how much they could rise in the future — don't get a lot of attention from first-time home buyers, they are a factor in mortgage calculations, Hale said.
Taxes are not likely to be top of mind for first-time buyers, who tend to take on a lot of mortgage debt, because those buyers make smaller payments in the beginning, she said. As mortgage balances get paid down, especially with a fixed-rate mortgage, property tax payments tend to become more apparent for those who stay in their homes for longer, Hale said.
She added that in an environment where housing affordability is stretched for many buyers, rising property taxes represent another cost that isn't improving the overall affordability picture.
Barber said rising property taxes add to monthly expenses, an important factor for people looking to buy a house or deciding whether to keep their current home.
"Depending on the geographic area, a 4% increase in property taxes could result in an additional expenditure of several hundred dollars a year," Barber said. "While not deemed substantial, it's a factor worthy of consideration for households experiencing financial constraints."
Denver-area square feet brokered
| Rank | Prior Rank | Business name |
|---|---|---|
1 | 1 | JLL |
2 | 2 | CBRE |
3 | 3 | Cushman & Wakefield |
