A proposal for property tax relief in the Texas House may have unintended consequences if lawmakers agree to reduce the appraisal cap from 10% to 5%.The Texas Legislature is in the middle of a balancing act. It must decide how to distribute a $33 billion surplus and also bring much-needed tax relief to homeowners.. That means the appraisal of a property could not increase by more than 5% a year.While well-intended, this proposal could harm Texas in the long run.
Such distortions in the housing market can affect homeownership for the worse, as California has discovered. In that state, voters backed an appraisal cap of 2% in 1978, with home appraisals resetting to match market value at the time of a sale. People tended to stay longer in their homes while newer homebuyers faced a higher tax burden.
And tax policy experts generally agree that appraisal caps don’t necessarily force taxes down for homeowners. Cities and school districts can raise tax rates to adjust to appraisal limits. Free-market purists might argue that the current 10% appraisal cap already creates a distortion in the market, but the housing market in Texas has managed at that level.