Monday, September 10, 2007

Some science to back up the claims!

If anyone is doubting the effects that property taxes have on values, I offer the following as further evidence. John F. McDonald, PhD, is Emeritus Professor of Finance and Economics and Director of the Center for Urban Real Estate in the College of Business Administration at the University of Illinois at Chicago. He received his PhD in economics from Yale University in 1971, and joined the UIC faculty in that year. He is editor of the Journal of Real Estate Literature. He has published six books, including the forthcoming Urban Economics: Theory and Policy (Blackwell, 2006) with Daniel McMillen, and over 80 articles in academic journals that include Journal of Urban Economics, Review of Economics and Statistics, American Economic Review, Journal of Real Estate Finance and Economics, and Review of Accounting and Finance. (I would think that these would be enough credentials :) ). Researched this exact topic in Chicago. Chicago faces a similar, though not as dramatic, situation. His paper "Are property taxes capitalized in the selling price of industrial real estate? " came to the conclusion that they are........

There are only a few econometric studies of the selling price of improved industrial properties. The study presented here contributes to the topic by looking at the industrial real estate market near O'Hare Airport in metropolitan Chicago for 2001-2004. This study finds that comparable properties located in suburban Cook County--the central county in the metropolitan area--sold at a 16.2% discount compared to the adjacent county (DuPage County) because of the sharply higher property tax rate imposed on industrial property in Cook County: 4.32% in Cook County versus 1.69% in DuPage County for the properties included in this study. The magnitude of the property tax effect implies that the hypothesis of full capitalization of the tax cannot be rejected. In addition, the selling price per square foot depends upon a number of characteristics of the property as expected...........


The focus of the study is on the market for industrial property in the O'Hare Airport area, which has an unusual exogenous property tax feature. The mean property tax rate for the properties in the sample was 2.63% of market value higher in Cook County compared to DuPage County. The results show that properties located in Cook County sold at a 16.2% discount compared to properties located in DuPage County; this result is approximately consistent with full capitalization of a 2.63% property tax differential.

The full paper is available @ (free registration)

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