Homeowners may pay more property tax Base is shifting, report concludes

June 13, 1993|By Ellen James Martin | Ellen James Martin,Staff Writer

Homeowners may soon pay higher property taxes because of the collapse of the commercial real estate market.

As the value of office, industrial and retail buildings has fallen, the amount of taxes paid by owners of such properties has

shrunk. And owners of residential property will be forced to make up the difference, according to a report by the Urban Land Institute, a Washington-based real estate research group.

The report foresees "a massive shift in the burden of paying for local government services from the commercial sector to the residential sector."

"It's not a doomsday report, but it's a sobering report," observes John E. Petersen, president of the Government Finance Group, a subsidiary of Baltimore-based Legg Mason, which serves as a financial adviser to local governments.

He and Kimberly K. Edwards, his colleague at the Government Finance Group, headquartered in Arlington, Va., co-authored the report.

Through most of the 1980s, property values and tax assessments on both commercial and residential property rose. As assessments rose, politicians in most parts of the United States enjoyed a swelling tax base and property tax increases were generally kept to a minimum, Mr. Peterson notes.

Since 1989, however, assessments on commercial real estate have fallen sharply and will continue to fall, reducing tax bills for commercial property owners. That will force local politicians to either raise the tax rate for businesses or homeowners, find other revenue or cut services, the report says.

Arthur Davis 3rd, president-elect of the Maryland Association of Realtors, said local homeowners would be unable to handle higher property taxes. He suggested that revenue be made up through other taxes, such as local sales or income taxes.

The Urban Land Institute's report said many commercial properties, including office buildings in suburban locations and hotel properties, have lost 25 to 30 percent of their value since their peak in the late 1980s. It said that undeveloped parcels of land acquired for commercial use have lost as much as 40 percent of their value in the period.

By comparison, Mr. Petersen said homes throughout the United States have generally lost relatively little or no value since 1989. Midsized homes have been most stable in value with upper-end houses taking the biggest hits, he said.

The study was based on a look at five areas: New York City; Riverside, Calif.; Dallas; Loudoun County, Va.; and Chicago.

Although commercial real estate values have been falling for several years, the impact of the change in the tax base has only begun to be felt by local governments, in part, because assessments to calculate taxes are usually not done every year.

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