Property values as a measure of ability-to-pay: An empirical examination

The residential property tax is often criticized because housing value may not be a good measure of a household's ability to pay. To examine this criticism, a series of equations is estimated in which the dependent variable is housing price and the independent variables include household income. While the coefficient on income is always significant, it has little explanatory power. Further, the strength of the relationship between income and value weakens as length of tenure in the housing unit increases. Because housing value is a poor proxy for income, modifications to the tax structure such as tax deferment and curcuit breaker programs must be used to improve the viability of property taxation in terms of the ability-to-pay principle.