Sustainability in property taxation: an application for revenue stability and fairness perspectives, the City of Buffalo, NY
Abstract
The scholarly modeling of property tax has always posed a challenge, with two primary concerns to be addressed: first, maintaining sustainability in the collection, which is primarily a concern for local governments; and second, ensuring fair distribution, which is of greater concern for citizens. In today’s practices, assessment-based property tax increases unmatched expenses in bubble economies. There is a substitution problem in rapid falls, the tendency to not decrease the assessments gives way to black holes and opens the door to ghost cities. This paper proposes alternative approaches, aside from market/land value or last sold price, aimed at improving sustainability and fairness rates. The dataset examined is based on 93.7K records and 88 attributes for assessed value of properties within the City of Buffalo, the United States of America. Since the label (Total Value) is a numerical and continuous value, regression models are selected, where ensemble machine learning methods categorically work well with larger datasets, combined with weak learners, like decision trees. Stacked Ensemble led the least error for regression with 0.98 R2, followed by Gradient Boosting. Results show a 79% dominance of uncontrollable attributes, such as Land Value, Neighborhood, and Sale (last sold) Price, compared to controllable attributes, such as Total Living Area, Construction Grade, Second Story Area, and many others. This article suggests having a more balanced split between uncontrollable and controllable attributes would contribute to both sustainability and fair distribution.
Keyword : property tax, sustainable property taxing, tax revenue stability
How to Cite
Ozmen, E. (2023). Sustainability in property taxation: an application for revenue stability and fairness perspectives, the City of Buffalo, NY. International Journal of Strategic Property Management, 27(6), 391–404. https://doi.org/10.3846/ijspm.2023.20564
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Brien, S. T. (2018). Compensating changes to the property tax levy? An empirical test of the residual rule. Public Finance Review, 46(6), 949–973. https://doi.org/10.1177/1091142117700719
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Hayashi, A. T. (2014). Property taxes and their limits: evidence from New York City. Stanford Law & Policy Review, 25, 33–52.
Hayashi, A. T. (2020). Countercyclical property taxes. Virginia Tax Review, 40, 1–51.
Hong, J., Choi, H., & Kim, W. S. (2020). A house price valuation based on the random forest approach: the mass appraisal of residential property in South Korea. International Journal of Strategic Property Management, 24(3), 140–152. https://doi.org/10.3846/ijspm.2020.11544
James, S. (2012). The contribution of behavioral economics to tax reform in the United Kingdom. The Journal of Socio-Economics, 41(4), 468–475. https://doi.org/10.1016/j.socec.2011.07.004
Kelly, R., White, R., & Anand, A. (2020). Property tax diagnostic manual. World Bank. https://doi.org/10.1596/34793
Kulkarni, N., & Malmendier, U. (2022). Homeownership segregation. Journal of Monetary Economics, 129, 123–149. https://doi.org/10.1016/j.jmoneco.2022.05.001
LeDell, E., & Poirier, S. (2020, July). H2O AutoML: scalable automatic machine learning. In Proceedings of the 7th ICML Workshop on Automated Machine Learning (pp. 1–16). ICML.
Liberati, D., & Loberto, M. (2019). Taxation and housing markets with search frictions. Journal of Housing Economics, 46, 101632. https://doi.org/10.1016/j.jhe.2019.05.001
Markus, G. B., & Paffendorf, J. (2022). Property taxation in a shrinking city. Journal of Urban Affairs, 1–22. https://doi.org/10.1080/07352166.2022.2063728
McMillen, D., & Singh, R. (2020). Assessment regressivity and property taxation. The Rournal of Real Estate Finance and Economics, 60, 155–169. https://doi.org/10.1007/s11146-019-09715-x
Miotti, L. A., & Loch, C. (2020). Property value map updating by mass appraisal method – a case in the city of Pato Branco, state Paraná. Acta Scientiarum. Technology, 43(1), e48912. https://doi.org/10.4025/actascitechnol.v43i1.48912
Office of Management and Budget. (2017a) Historical tables: table 2.1–receipts by resource (-): 1934–2025. https://www.whitehouse.gov/omb/budget/historical-tables/
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Pokrovskaia, N. V., & Belov, A. V. (2020). Tax revenues of local budgets in unitary states: a case study of Japan. Journal of Tax Reform, 6(1), 73–89. https://doi.org/10.15826/jtr.2020.6.1.076
Propheter, G. (2022). Property tax systems and their administration. In Major league sports and the property tax: costs and implications of a stealth tax expenditure (pp. 31–63). Springer International Publishing. https://doi.org/10.1007/978-3-031-18790-2_2
Radvan, M. (2019). Municipal charges on communal waste: do they compete with the immovable property tax? Journal of Financial Management of Property and Construction, 24(2), 148–165. https://doi.org/10.1108/JFMPC-02-2018-0007
Reshetov, K. Y., Mysachenko, V. I., & Mikhailova, A. S. (2020). A comparative analysis of tax systems in Russia and Germany. In A. V. Bogoviz (Ed.), Complex systems: innovation and sustainability in the digital age (Vol. 1, pp. 169–175). Springer International Publishing. https://doi.org/10.1007/978-3-030-44703-8_19
Rumbach, A., Sullivan, E., McMullen, S., & Makarewicz, C. (2022). You don’t need zoning to be exclusionary: manufactured home parks, land-use regulations and housing segregation in the Houston metropolitan area. Land Use Policy, 123, 106422. https://doi.org/10.1016/j.landusepol.2022.106422
Sagaydak, A., & Sagaydak, A. (2021). Agricultural land consolidation vs. land fragmentation in Russia. International Journal of Engineering and Geosciences, 7(2), 128–141. https://doi.org/10.26833/ijeg.919939
Sarkar, S., & Rosenthal, J. (2018). Exclusionary taxation. Harvard Civil Rights-Civil Liberties Law Review, 53, 619–680.
Schwab, J. C. (1890). History of the New York property tax. Publications of the American Economic Association, 5(5), 17–108. https://doi.org/10.2307/2139542
Sherlock, M. F., & Marples, D. J. (2018). Overview of the federal tax system in 2018 (Report No. 45145). Congressional Research Service. https://digital.library.unt.edu/ark:/67531/metadc1156783/
Shertzer, A., Twinam, T., & Walsh, R. P. (2022). Zoning and segregation in urban economic history. Regional Science and Urban Economics, 94, 103652. https://doi.org/10.1016/j.regsciurbeco.2021.103652
Stojanov, R., Němec, D., & Žídek, L. (2019). Evaluation of the long-term stability and impact of remittances and development aid on sustainable economic growth in developing countries. Sustainability, 11(6), 1538. https://doi.org/10.3390/su11061538
Tax Policy Center. (2019). Sources of federal revenue. https://www.taxpolicycenter.org/briefing-book/what-are-sources-revenue-federal-government
Tsoodle, L. J., & Turner, T. M. (2008). Property taxes and residential rents. Real Estate Economics, 36(1), 63–80. https://doi.org/10.1111/j.1540-6229.2008.00207.x
Unel, F. B., & Yalpir, S. (2023). Sustainable tax system design for use of mass real estate appraisal in land management. Land Use Policy, 131, 106734. https://doi.org/10.1016/j.landusepol.2023.106734
Urban Institute. (2017). Local property tax revenue, by level of government. https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/projects/state-and-local-backgrounders/property-taxes
Urban Institute. (2020a). Sources of state general revenue. https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/state-and-local-backgrounders/state-and-local-revenues
Urban Institute. (2020b). Sources of local general revenue. https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/state-and-local-backgrounders/state-and-local-revenues
Urban Institute. (2020c). Sources of state and local general revenue. https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/state-and-local-backgrounders/state-and-local-revenues
Urban Institute. (2020d). Property tax revenue. https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/projects/state-and-local-backgrounders/property-taxes
Ushatova, D. (2019). Disbalance between tax assessments and market prices of real estate. Trakia Journal of Sciences, 17(1), 115–124. https://doi.org/10.15547/tjs.2019.s.01.020
Vlassenko, I. (2001). Evaluation of the efficiency and fairness of British, French and Swedish property tax systems. Property Management, 19(5), 384–416. https://doi.org/10.1108/EUM0000000006239
Youngman, J. M. (2016). A good tax: legal and policy issues for the property tax in the United States. Lincoln Institute of Land Policy.
Almy, R. (2001). A survey of property tax systems in Europe (Report). Department of Taxes and Customs, Ministry of Finance, Republic of Slovenia.
Amornsiripanitch, N. (2020). Why are residential property tax rates regressive? https://doi.org/10.2139/ssrn.3729072
Anderson, N. B. (2006). Property tax limitations: an interpretative review. National Tax Journal, 59(3), 685–694. https://doi.org/10.17310/ntj.2006.3.18
Arsen, D. (1992). Property tax assessment rates and residential abandonment: policy for New York City. American Journal of Economics and Sociology, 51(3), 361–377. https://doi.org/10.1111/j.1536-7150.1992.tb03487.x
Artige, L., & Cavenaile, L. (2023). Public education expenditures, growth and income inequality. Journal of Economic Theory, 209, 105622. https://doi.org/10.1016/j.jet.2023.105622
Auxier, R., & Weiner, D. (2023). Who benefited from 2022’s many state tax cuts and what is in store for 2023? Urban Institute, Brookings Institution, Tax Policy Center.
Barnett, J. L., & Vidal, P. M. (2013). State and local government finances summary: 2011. Governments Division Briefs, 2.
Berry, C. R. (2021). Reassessing the property tax. https://doi.org/10.2139/ssrn.3800536
Boddupalli, A., & Rueben, K. (2021). State and local government revenues and racial disparities. Urban Institute, Brookings Institution, Tax Policy Center.
Boddupalli, A., Gordon, T., & Germán, L. (2021). More than fines and fees: incorporating equity into city revenue strategies. Urban Institute.
Brien, S. T. (2018). Compensating changes to the property tax levy? An empirical test of the residual rule. Public Finance Review, 46(6), 949–973. https://doi.org/10.1177/1091142117700719
Buodd, M. F., & Derås, E. J. (2020). Machine learning for property valuation: an empirical study of how property price predictions can improve property tax estimations in Norway [Master’s thesis, Norwegian School of Economics]. Bergen.
Chen, J. H., Ong, C. F., Zheng, L., & Hsu, S. C. (2017). Forecasting spatial dynamics of the housing market using support vector machine. International Journal of Strategic Property Management, 21(3), 273–283. https://doi.org/10.3846/1648715X.2016.1259190
City of Buffalo. (2023). Current assessment roll. https://data.buffalony.gov/Government/Current-Assessment-Roll-2023-2024-/4t8s-9yih/data
Cornia, G. C., & Walters, L. C. (2006). Full disclosure: controlling property tax increases during periods of increasing housing values. National Tax Journal, 59(3), 735–749. https://doi.org/10.17310/ntj.2006.3.22
Dadayan, L., & Rueben, K. (2021). Surveying state leaders on the state of state taxes. Urban Institute, Brookings Institution, Tax Policy Center.
EBP Research. (2023, January). The U.S. housing market in 2023: what to expect. Case-Shiller, NAR, Census Bureau. https://seekingalpha.com/article/4566961-housing-market-2023-what-to-expect
England, R. W. (2016). Tax incidence and rental housing: a survey and critique of research. National Tax Journal, 69(2), 435–460. https://doi.org/10.17310/ntj.2016.2.07
Eom, T. H. (2008). A comprehensive model of determinants of property tax assessment quality: evidence in New York State. Public Budgeting & Finance, 28(1), 58–81. https://doi.org/10.1111/j.1540-5850.2008.00897.x
Fleck, J., Heathcote, J., Storesletten, K., & Violante, G. L. (2021). Tax and transfer progressivity at the US state level (Working Paper). https://www.jofleck.com/files/state_progressivity.pdf
Gallagher, R. M. (2019). Restrictive zoning’s deleterious impact on the local education property tax base: evidence from zoning district boundaries and municipal finances. National Tax Journal, 72(1), 11–44. https://doi.org/10.17310/ntj.2019.1.01
Gürlek, E. (2021). Corporate taxation in the US and Canada–a comparative analysis. Junior Management Science, 6(3), 489–506.
Harris, B. H., Moore, B. D., & Center, U. B. T. P. (2013). Residential property taxes in the United States (Working Paper). Urban Institute, Brookings Institution, Tax Policy Center.
Hayashi, A. T. (2014). Property taxes and their limits: evidence from New York City. Stanford Law & Policy Review, 25, 33–52.
Hayashi, A. T. (2020). Countercyclical property taxes. Virginia Tax Review, 40, 1–51.
Hong, J., Choi, H., & Kim, W. S. (2020). A house price valuation based on the random forest approach: the mass appraisal of residential property in South Korea. International Journal of Strategic Property Management, 24(3), 140–152. https://doi.org/10.3846/ijspm.2020.11544
James, S. (2012). The contribution of behavioral economics to tax reform in the United Kingdom. The Journal of Socio-Economics, 41(4), 468–475. https://doi.org/10.1016/j.socec.2011.07.004
Kelly, R., White, R., & Anand, A. (2020). Property tax diagnostic manual. World Bank. https://doi.org/10.1596/34793
Kulkarni, N., & Malmendier, U. (2022). Homeownership segregation. Journal of Monetary Economics, 129, 123–149. https://doi.org/10.1016/j.jmoneco.2022.05.001
LeDell, E., & Poirier, S. (2020, July). H2O AutoML: scalable automatic machine learning. In Proceedings of the 7th ICML Workshop on Automated Machine Learning (pp. 1–16). ICML.
Liberati, D., & Loberto, M. (2019). Taxation and housing markets with search frictions. Journal of Housing Economics, 46, 101632. https://doi.org/10.1016/j.jhe.2019.05.001
Markus, G. B., & Paffendorf, J. (2022). Property taxation in a shrinking city. Journal of Urban Affairs, 1–22. https://doi.org/10.1080/07352166.2022.2063728
McMillen, D., & Singh, R. (2020). Assessment regressivity and property taxation. The Rournal of Real Estate Finance and Economics, 60, 155–169. https://doi.org/10.1007/s11146-019-09715-x
Miotti, L. A., & Loch, C. (2020). Property value map updating by mass appraisal method – a case in the city of Pato Branco, state Paraná. Acta Scientiarum. Technology, 43(1), e48912. https://doi.org/10.4025/actascitechnol.v43i1.48912
Office of Management and Budget. (2017a) Historical tables: table 2.1–receipts by resource (-): 1934–2025. https://www.whitehouse.gov/omb/budget/historical-tables/
Office of Management and Budget. (2017b). Historical tables: table 1.1–summary of receipts, outlays, and surpluses or deficits (-): 1789–2022. https://www.whitehouse.gov/omb/budget/historical-tables/
Pokrovskaia, N. V., & Belov, A. V. (2020). Tax revenues of local budgets in unitary states: a case study of Japan. Journal of Tax Reform, 6(1), 73–89. https://doi.org/10.15826/jtr.2020.6.1.076
Propheter, G. (2022). Property tax systems and their administration. In Major league sports and the property tax: costs and implications of a stealth tax expenditure (pp. 31–63). Springer International Publishing. https://doi.org/10.1007/978-3-031-18790-2_2
Radvan, M. (2019). Municipal charges on communal waste: do they compete with the immovable property tax? Journal of Financial Management of Property and Construction, 24(2), 148–165. https://doi.org/10.1108/JFMPC-02-2018-0007
Reshetov, K. Y., Mysachenko, V. I., & Mikhailova, A. S. (2020). A comparative analysis of tax systems in Russia and Germany. In A. V. Bogoviz (Ed.), Complex systems: innovation and sustainability in the digital age (Vol. 1, pp. 169–175). Springer International Publishing. https://doi.org/10.1007/978-3-030-44703-8_19
Rumbach, A., Sullivan, E., McMullen, S., & Makarewicz, C. (2022). You don’t need zoning to be exclusionary: manufactured home parks, land-use regulations and housing segregation in the Houston metropolitan area. Land Use Policy, 123, 106422. https://doi.org/10.1016/j.landusepol.2022.106422
Sagaydak, A., & Sagaydak, A. (2021). Agricultural land consolidation vs. land fragmentation in Russia. International Journal of Engineering and Geosciences, 7(2), 128–141. https://doi.org/10.26833/ijeg.919939
Sarkar, S., & Rosenthal, J. (2018). Exclusionary taxation. Harvard Civil Rights-Civil Liberties Law Review, 53, 619–680.
Schwab, J. C. (1890). History of the New York property tax. Publications of the American Economic Association, 5(5), 17–108. https://doi.org/10.2307/2139542
Sherlock, M. F., & Marples, D. J. (2018). Overview of the federal tax system in 2018 (Report No. 45145). Congressional Research Service. https://digital.library.unt.edu/ark:/67531/metadc1156783/
Shertzer, A., Twinam, T., & Walsh, R. P. (2022). Zoning and segregation in urban economic history. Regional Science and Urban Economics, 94, 103652. https://doi.org/10.1016/j.regsciurbeco.2021.103652
Stojanov, R., Němec, D., & Žídek, L. (2019). Evaluation of the long-term stability and impact of remittances and development aid on sustainable economic growth in developing countries. Sustainability, 11(6), 1538. https://doi.org/10.3390/su11061538
Tax Policy Center. (2019). Sources of federal revenue. https://www.taxpolicycenter.org/briefing-book/what-are-sources-revenue-federal-government
Tsoodle, L. J., & Turner, T. M. (2008). Property taxes and residential rents. Real Estate Economics, 36(1), 63–80. https://doi.org/10.1111/j.1540-6229.2008.00207.x
Unel, F. B., & Yalpir, S. (2023). Sustainable tax system design for use of mass real estate appraisal in land management. Land Use Policy, 131, 106734. https://doi.org/10.1016/j.landusepol.2023.106734
Urban Institute. (2017). Local property tax revenue, by level of government. https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/projects/state-and-local-backgrounders/property-taxes
Urban Institute. (2020a). Sources of state general revenue. https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/state-and-local-backgrounders/state-and-local-revenues
Urban Institute. (2020b). Sources of local general revenue. https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/state-and-local-backgrounders/state-and-local-revenues
Urban Institute. (2020c). Sources of state and local general revenue. https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/state-and-local-backgrounders/state-and-local-revenues
Urban Institute. (2020d). Property tax revenue. https://www.urban.org/policy-centers/cross-center-initiatives/state-and-local-finance-initiative/projects/state-and-local-backgrounders/property-taxes
Ushatova, D. (2019). Disbalance between tax assessments and market prices of real estate. Trakia Journal of Sciences, 17(1), 115–124. https://doi.org/10.15547/tjs.2019.s.01.020
Vlassenko, I. (2001). Evaluation of the efficiency and fairness of British, French and Swedish property tax systems. Property Management, 19(5), 384–416. https://doi.org/10.1108/EUM0000000006239
Youngman, J. M. (2016). A good tax: legal and policy issues for the property tax in the United States. Lincoln Institute of Land Policy.