[This post was authored by Hudson Vaughan, who recently conducted a study on racial and vertical equity in North Carolina property tax appraisals under the supervision of UNC School of Government faculty member Chris McLaughlin. Vaughan, who is a 2008 graduate of UNC and earned his M.Div. from Duke University in 2023, co-founded and served for a dozen years as a director of the Marian Cheek Jackson Center, a community development non-profit in the historically Black neighborhoods of Chapel Hill. He currently serves as a consultant for affordable housing and community engagement efforts across North Carolina and can be reached at Hudson.vaughan@gmail.com.]

Ms. Morris, a 95-year-old lifetime resident in a historically Black neighborhood in a North Carolina town, received her new property tax valuation in the mail.  The value had jumped from $190,000 to over $350,000, an ~85% increase.  She knew this could mean her property taxes would almost certainly increase substantially, and she’d have to reach deeper into limited retirement to hold onto the home her family built and she’d spent decades maintaining.  While she was worried about this rise, she assumed, as did most of her neighbors, that this was just the reality of the market, an unfortunate but accurate assessment of its tax value.

But just down the street, in the same neighborhood, a 6-bedroom investor-owned student rental built 50 years after Ms. Morris’ house and nearly twice its size, received a lower valuation than her house.

[1]

Several other recently built student rental properties had, in fact, received tax assessed values hundreds of thousands of dollars less than their recent sale prices, even while the valuations of older homes like Ms. Morris’ nearly doubled.

Months of collective community advocacy followed.  Neighbors built a coalition of a dozen local organizations, submitted over a hundred individual appeals, sent letters to the commissioners signed by over 600 county residents, and created visuals like the above to demonstrate the inequities. The county finally recognized that hundreds of neighborhood properties, mostly older homes owned by Black, long-term residents, had been systemically over-valued – and reassessed the entire neighborhood.  Property value increases were cut in half as a result.

What happened that led to such systemic inequity?  Was this just a rare mistake or the work of a problematic assessor?

It turns out the property valuation inequities in this case were not the result of purposeful discrimination, individual mistake, or assessment malpractice but a systemic error following an approach to mass assessment common across the country that lends itself to inequity.[2]  The county had, in fact, met basic sales ratio requirements and matched neighborhood averages to qualified comparable sales.  But things had still somehow gone awry.

There was not one easily identified problem, but several issues came to light in the process. 1) Attention hadn’t been paid to the variations of the neighborhood’s zoning restrictions and limitations. 2) Houses built in the 1920’s without major renovations were being compared to much bigger homes built or renovated in the last twenty years. 3) Neighborhood delineations, which help determine land values, combined disparate property ages and types and yet divided up the community in ways that separated off relevant sales that showed the range of the housing market. As a result, land values had been set for properties at higher amounts than some of the neighborhood home sales, even arms-length sales in which the property value was clearly more than just the land itself. 4) Data on many homes was inaccurate, especially on investor homes featuring work completed without permits. 5) Averages and medians across widespread values had been over-utilized, squeezing assessed values to the middle. 6) Appeals from low-wealth historically Black neighborhoods like this one tend to be less likely, which may have contributed to the lack of recognition to the detailed differences within the community. In other words, elements in every part of the mass appraisal system contributed. 

Property tax values rarely command the public’s attention. Revaluations are spread out to every four to eight years in NC counties, and most homeowners tend to trust that assessments are relatively fair and reflective of the market (or even lagging it).  If there are mistakes, we assume they are idiosyncratic— a miscalculation on a single property.  On an individual level, property taxes can seem somewhat insignificant, folded into our mortgage escrow payments or a one-time annual expense.  And if our property taxes are high across our neighborhood, we likely blame the tax rate, instead of questioning the tax value and the distribution of tax burden within our communities.

But what about when there are broad-based problems in the tax assessments throughout our communities, as many national studies have shown?[5] After all, a large majority of county and local government funding comes from property taxes, so while the individual burden may seem limited, the collective impact of an unfair and inequitable property valuation could be massive.   In the example above alone, had neighbors not recognized the systemic problem and advocated for the county to correct it, it’s likely that long-term, lower income Black neighbors would have paid nearly $1,000,000 more collectively in property taxes before the next reassessment.  Imagine the impact on tens of thousands of homeowners like Ms. Morris if this example reflects a more systemic problem across the state.

As it turns out, the problem exceeds what I imagined.  In 2022, 81 of 100 NC Counties were considered regressive, failing to meet basic vertical equity standards for county-wide data samples.[6] This means that in more than 4 out of 5 counties statewide, higher-value properties are underassessed while lower-value properties are over-assessed in comparison, beyond the acceptable range of error.  This functionally leads to a higher property tax burden for low-income homeowners and communities throughout the state, often to an even more extreme degree than in the case of Ms. Morris.[7]

2022 was not an anomaly either.  From 2019-2022, an average of 72 counties failed basic vertical equity standards each year, and all of these were regressive.  In fact, not one single county was considered “progressive” in any of the years, meaning that not a single county systemically over-assessed high value properties outside of the standard range.

In dozens of NC counties, the very lowest value homes have average sales ratios that are more than double the sales ratios of the highest value houses. In several counties, average sales ratios of low-value homes are as much as 4 times higher.[8]  To translate this: our state’s lowest income homeowners in dozens of counties likely pay more than twice as much in property taxes per dollar of market value than their wealthiest neighbors year after year. 

Even beyond complex issues of vertical equity, most NC counties do not meet basic standards of fairness and accuracy.[9]  One of the most commonly used standards for accuracy and horizontal equity is the coefficient of dispersion (COD), which assesses the average deviation of individual property sales ratios from the overall median sales ratio.[10]  Mass assessments are assumed to have some variation from market sales given they are predictions of value, so the general standards are a COD of 5-15% with county-wide data, with up to 20% deemed acceptable, especially in more rural counties and with varying property types.  For NC, the average county COD for the hundred counties statewide was 27%, nearly twice the best practice standard. This means that across the state of North Carolina, the margin of error for properties in the same county averages nearly 30%!

In a state that requires all property, real and personal, to be assessed for taxation at its “true value,” how are such inequities possible?[11]   And what can be done to correct these widespread problems?

When I first started doing property tax research a year ago, I thought the primary answer to this would come from technical statistical analysis.  But it turns out there are basic structural issues that lead to unfair property valuations. These structural issues are not caused by individual assessors or staff members; in fact, most of the assessors and tax officials I interviewed are going above and beyond the call of duty to improve their county assessments.

In my independent research, I’ve sought out and analyzed county and state data, talked to county assessors, NC DOR staff, UNC’s School of Government, and the International Association of Assessing Officers (IAAO), and read research across the country to seek out answers to the questions above.  This research has led me to identify key underlying infrastructure issues in NC’s tax assessment system and to offer a few models for change.  

In my full paper, linked below, I make five recommendations for addressing the most critical structural issues identified through this research, which included meetings, interviews, and exchanges with assessors spread across NC and experts involved at all levels of implementing our tax assessments.  Further detail of the challenges and examples that undergird these recommendations are included as well, with examples of best practices from across the state and from states across the political spectrum.  Given the UNC School of Government’s commitment to policy neutrality, I offer these recommendations as mine alone and not on behalf of the School.

Click here for my full study paper.

[1] The image above shows the two properties and their initial re-valuations.

[2] Christopher Berry, “Reassessing the Property Tax,” The University of Chicago: The Harris School of Public Policy and the College (March 1, 2021), Accessed at https://bpb-us-w2.wpmucdn.com/voices.uchicago.edu/dist/6/2330/files/2019/04/Berry-Reassessing-the-Property-Tax-3121.pdf

[3] Many of these larger homes were built just before new neighborhood zoning restrictions that no longer allow such large homes in the community, so the older homes cannot be redeveloped into similar sized rentals.

[4] Many of these renovations could be seen in rental postings online

[5] See Avenancio-León and Howard’s “The Assessment Gap: Racial Inequalities in Property Taxation,” and Berry’s “Reassessing the Property Tax” as two of the more prominent recent analyses.

[6] Analysis of North Carolina’s statewide 2022 random sample of qualified sales (2021 sales).  81 of 100 counties had a Price Related Differential of 1.03 or greater.  The median PRD was 1.08, far outside the bounds of the IAAO standard of 0.98-1.03.  The random sample includes ~30,000 qualified sales statewide.  It represents a smaller proportion of larger county sales, but is a substantial portion, if not all, of many smaller county qualified sales.

[7] In fact, the neighborhood example in the introduction of this article is located in one of the 19 counties that meets the standards, demonstrating just how serious this disparity may be in many of these other counties.

[8] Using the 95/5 metric which compares average sales ratios in the top and bottom decile of sale values.

[9] More than 60% have a COD higher than 30, and less 1 in 4 meet the 5-15% threshold.

[10] In its “Standard on Ratio Studies,” the IAAO defines COD as: “The most generally useful measure of variability or uniformity is the COD. The COD measures the average percentage deviation of the ratios from the median ratio.”

[11] NCGS § 105-283.