Recent Developments in Texas Property Taxes, With an Emphasis on Cities

In my Oct. 3 blog post, I wrote on this topic with an emphasis on school district taxes. This time, I’ll examine recent changes in aggregate city property taxes.  

City property tax levies have been on the rise as a percentage of total property taxes since 2013, though still below their share in the late 1980s (Figure 1). In 1986, the share hit 20.45 percent, then they hit a low of 14.64 percent in 2005 and reached 18.72 percent last year. Comparable data for 2024 won’t be available until 2025.  

One reason for the increased share in 2022 and 2023 is the record increase in the state-mandated and funded school district homestead exemption (as outlined in my last blog). From 2022 to 2023, total taxable value for schools rose only 1.25 percent (largely due to the larger homestead exemption), while it rose 12.4 percent for cities. Another way to view this is to compare the percentage of market value that is taxed by each group year to year (Figure 2).  

While those are valid metrics for relative comparison, let’s look specifically at property tax values and the total annual levy raised by cities since 2019. As illustrated in Figure 3, all three components of this chart grew each year. However, the tighter property tax revenue growth limitation enacted in 2019 has had an impact. From 2019 to 2023 total market value increased 53.6 percent while the total levy increased by 35.1 percent. Keep in mind these measures include new construction and added value from renovations each year, in addition to market value growth of existing properties.  

The aggregate market value growth makes sense for two reasons that work in concert: 1) real estate is an appreciable asset class, and 2) Texas population and job growth has been strong for years, and that growth accelerated in 2022 when Texas population surpassed 30 million residents. While this analysis includes the entire property tax base (business property and personal residences), it is worth noting that Texas’ median home prices rose 38.8 percent from 2019 to 2023. The Texas Comptroller of Public Accounts comment on this as follows:   

A rapid upswing in prices in Texas and the U.S. began in 2020 due to increased opportunities to telework, federal stimulus, low mortgage rates, a surging stock market and accelerating domestic migration to the state, according to the Federal Reserve Bank of Dallas. Texas is a top destination for domestic migration, putting acute pressure on the state’s housing affordability. The Dallas-Fort Worth-Arlington area led all U.S. metro areas in population growth and in net domestic migration between 2020 and 2023. 

With such rapidly rising property values, we would expect to see declining property tax rates. Figure 4 shows property tax rates imposed by cities over the last five years. The stacked bars illustrate the two components of property taxes: 1) maintenance and operations rates and 2) interest and sinking rate for debt service. These are statewide medians charged by cities. The implied total rate is the total levy divided by the total taxable value. The combined medians being lower than the implied total is a result of the largest cities generally charging rates above the median. For example, each of the top five cities charge a total rate higher than the statewide median. 

The effective tax rate (ETR) is where the rubber meets the road, so to speak, as it illustrates the difference between the total tax levy and the total market value. This is the best unit of comparison. From 2019 to 2023, the statewide overall city ETR is down from 0.45 to 0.396, a 12.07 percent reduction, while total tax rate was down 6.78 percent over the same time. The greater decline in ETR reflects expansion of exemptions approved by individual cities. Keep in mind, these are aggregate rates from across all property types. So, the ETR paid on homesteads is lower than the aggregate.  

Unlike the homestead exemption for school taxes, which is required by the state, the exemption granted by cities is a local option. Each city may adopt a residence homestead exemption of up to 20 percent of a property’s appraised value. The local option exemption, if offered, cannot be less than $5,000. If your city does not offer the maximum homestead exemption, you may want to ask about this at a future council meeting. Cities do not set values, but they do set rates and homestead exemption levels.  

End Notes:  

1. All data were sourced from the Texas State Comptroller; rate analysis excludes entities that did not report complete data to the Comptroller in any given year.  

2. For Texas’ median home prices and other Texas housing statistics, see the Texas Real Estate Research Center’s housing data.   

3. The referenced Comptroller report is “The Housing Affordability Challenge” published August 2024.