The city of Detroit, Michigan was put through the wringer during the Great Recession and housing crisis that peaked in 2012. That year, property values in the city reached near-historic lows that were largely spurred on by massive numbers of foreclosures and a huge inventory of vacant houses. Indeed, during the height of the crisis, hundreds of homes in the city could be had for $5,000 or less. Of course, such low-value properties had serious issues. In many cases, delinquent tax bills were still attached to them. Despite the fact that the Detroit property tax rate is among the highest in the nation among large cities, investors and others swooped in to snap up dozens of these properties at once. All of this leaves many wondering why a city that is in such dire financial straits and that is home to so many people who live at or below the poverty level assesses such high property taxes. Also, how do Detroit’s property taxes compare with those of other major cities?
How Does Detroit Property Tax Stack Up with Other Major Cities’?
It’s easier to understand how high Detroit property taxes truly are by comparing them to those of other major U.S. cities. As evidenced by the 50 State Property Tax Study 2013, a report by the Minnesota Center for Fiscal Excellence, Detroit has some of the highest property taxes in the country by a long shot. The following figures reflect property taxes payable in 2013 based on a home with a value of $150,000, along with the effective tax rate (ETR):
- Bridgeport, Connecticut – $6,143 – 4.095%
- Aurora, Illinois – $5,182 – 3.455%
- Detroit, Michigan – $4,988 – 3.325%
- Philadelphia, Pennsylvania – $4,437 – 2.958%
- Milwaukee, Wisconsin – $4,113 – 2.742%
Here are a few more examples from major metro areas from around the country:
- Houston, Texas – $2,843 – 1.896%
- Atlanta, Georgia – $1,782 – 1.188%
- Indianapolis, Indiana – $1,496 – 0.997%
- New York, New York – $1,087 – 0.724%
- Washington, DC – $661 – 0.441%
- Boston, Massachusetts – $175 – 0.117%
If these figures are from a few years ago, you may be wondering if the property tax situation in the city of Detroit has improved at all in the years since. Although the city is working to get the situation under control, there’s still a long way to go.
How Are They Tackling the Over-Assessment Problem?
The housing crisis and recession had many far-reaching ripple effects. Many of them are still being felt to that day, and the over-assessment of properties in Detroit is a prime example. Through the course of the turmoil, property values in Detroit plummeted. The following average property values reflect prices in January of each of the following years:
- 2008 – $72,800
- 2009 – $64,200
- 2010 – $48,800
- 2011 – $42,300
- 2012 – $37,300
- 2013 – $39,800
- 2014 – $41,100
- 2015 – $40,400
- 2016 – $37,678
Although property values have been increasing in the city over the last few years, they still lag far behind what they were prior to the recession. Unfortunately, the city has failed to update assessments based on these newer, lower valuations. As a result, many properties around Detroit are not only subject to one of the highest property tax rates in the country, but they are being assessed based on woefully outdated property values.
In 2015, Mayor Mike Duggan and the city council of Detroit went to work to remedy the property tax situation. At the time, more than 52,000 properties in the city were poised for seizure due to unpaid taxes, which accounted for approximately one-fifth of all homes. The problem was a sad reminder of how far the city’s fortunes have fallen. In the 1950s, Detroit had one of the highest rates of homeownership in the U.S. When manufacturing jobs in the auto industry started drying up, the city’s decline began. Today, Detroit has one of the highest poverty rates in the country. The population plummeted from a high of around 1.85 million people in the 1950s to fewer than 700,000 today. It appears that the high Detroit property tax situation is largely the city’s way of trying to make up for its declining tax base. Considering that so many residents live at or below the poverty level, however, this strategy clearly hasn’t paid off.
More than half of Detroit homeowners saw their tax assessments drop by around 10% in 2015. However, the rate adjustments weren’t even across all neighborhoods. Some neighborhoods, including Sherwood Forest and Indian Village, saw no change at all. Northeast Detroit and the near west side saw their property tax assessments drop by 20%. Downtown, Midtown, the west side and the northern boundaries of the city saw assessments drop by around 10%. Southwest Detroit and the far east side saw assessments drop by about 5%. The hope was that the more reasonable tax bills would more easily be paid by cash-strapped citizens.
2016 Detroit Property Tax Updates
A year after Mayor Duggan implemented the lower property tax assessments, things haven’t improved very much in Detroit. Around 62,000 properties will be subject to foreclosure by the time taxes are assessed; around 42,000 of those properties are currently occupied. This is despite the fact that the city agreed to allow payment plans for back taxes and to cap tax debt at 25% of a property’s market value. According to Michigan Radio, additional property tax assessment reductions are expected this year, with around 90% of properties expected to have lower assessments when it is all said and done. The reductions won’t be as dramatic as those of 2015, but some parts of the city, including northwest Detroit, will see assessments drop by around 15%.
Duggan has already stated that there are no plans to reduce the Detroit property tax rate, even though it is one of the highest in both the state and the country. If you’re thinking about buying a very affordable home in the city, make sure to get an accurate idea of the property taxes that you will be paying to ensure that it still suits your budget.
2 Point Highlight
As evidenced by the 50 State Property Tax Study 2013, a report by the Minnesota Center for Fiscal Excellence, Detroit has some of the highest property taxes in the country by a long shot.
More than half of Detroit homeowners saw their tax assessments drop by around 10% in 2015.
