Property Taxes and Commercial Real Estate Values in Urban Areas GCP-96-11

John F. McDonald
John F. McDonald Senior Associate Dean for Academic Affairs and Research in the College of Business Administration

The purpose of this paper is to present a summary of what is known about the effects of property taxation on the market rents and market values of commercial and industrial real estate in urban areas. More precisely, the paper concentrates on the impacts of changes in and variations in property tax rates on commercial and industrial property rents and values. The topic includes an examination of the effects of variations in property tax rates within an urban area. The paper does not examine the effects of public spending that might be funded by increasing the property tax rate on commercial and industrial property. It is taken as a given that commercial and industrial property usually pays far more in property taxes than the cost of the public goods and services directed at such property. Some 60 percent of all local government spending is on public schools, a public service that is assumed to benefit the owners of residential property.

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