Many taxpayers have charged that the current property tax system is unfair because it penalizes longtime homeowners with a higher tax bill when their neighborhoods start to gentrify.

One of those homeowners is City Council Member Ora Houston. During Council’s Dec. 6 work session, Houston said she lives in a house that is 50 years old but that there are some million-dollar houses “right around the corner from me. It’s killing me,” she said.

Now the Travis Central Appraisal District has come up with a new method of assigning property values so that new and remodeled homes in gentrifying neighborhoods are appraised separately from older homes that have not been remodeled.

Mayor Steve Adler introduced TCAD Chief Appraiser Marya Crigler and her staff at the work session, praising them for devising a new tool to make appraisals more equitable.

Crigler explained that TCAD’s new method of assigning residential appraisal values in central city neighborhoods is designed to reduce the impact of new construction and remodeling on the owners of homes that have not been remodeled.

Adler said this is the first time this appraisal method, called market segmentation, has been used in Texas, and he lauded TCAD for taking the step.

Michael Kasper, director of residential appraisals for TCAD, said the district categorizes new construction and remodeled houses differently than older homes that have not been remodeled.

For example, he said, “In the Deep Eddy and Tarrytown neighborhoods, you have a 1930s house … next to a sprawling complex built on three lots. Those are completely separate market segments,” he said. Using the segmentation method, the older houses’ values are compared to the values of other older houses, while the new and remodeled houses are judged in a separate category.

Kasper explained that TCAD appraisers did a market value study of the Allandale neighborhood to find out whether remodeled or reconstructed homes were being appropriately valued in contrast to original or unremodeled homes. They found that for 2015, the remodeled homes were undervalued, while the original homes were being overvalued.

The district had appraised the remodeled homes, on average, at about 83 percent of actual value. But the homes that had not been updated or remodeled were frequently valued at 120 percent of their actual value, presumably because they were in the same neighborhood as the remodeled homes.

“They’re on the same street, side by side, but two very different markets,” Kasper said. In Allandale, that meant one market with an average appraisal value of $520,000 and a second market of remodeled or reconstructed properties with an average value of $1.2 million.

Market segmentation allows for new and remodeled homes to be appraised at their full market value, Kasper said, and homeowners of older or original homes are not burdened with undue market value.

Kasper said that TCAD intends to conduct market segmentation analysis for every neighborhood in the urban core, including East Austin, in 2017.

District 3 Council Member Pio Renteria told the Austin Monitor that he and his neighbors are very much aware of gentrification and the burden it places on the owners of older homes.

Renteria, whose home is in the East Cesar Chavez neighborhood close to downtown, said, “I know the feeling.” He said he was encouraged by what he heard from TCAD but noted that it would not solve the gentrification problem.

“My neighbors catty-corner built a big ol’ house,” he said. “That whole block has been gentrified. My appraisal value has gone up extremely high, even though they lowered it down this time because I’m going through remodeling, because of termite damage. But as soon as I finish that, it’s going to jump back.

“They had appraised it at $437,000, and I lucked out because I’m a senior and my school taxes were frozen,” he continued. “So that helped me out a lot. But for people that are selling out – they’re making out OK. They’re just having to move out of the downtown East Austin neighborhood.”

Ten years ago, Renteria said, the same property was around $146,000. Of course, a lot of that value is in the land, which is not subject to segmentation analysis. The price of the land will continue to rise as long as there is high demand for Austin properties, appraisers noted.

One way that the district is able to gain more information about remodeled and reconstructed houses is by looking at city of Austin permitting records, which are open to the public.

However, some people choose to remodel their homes without going through procedures required by city ordinance. TCAD is able to uncover some of those remodels by driving through neighborhoods and noting new construction and remodeling. One sure sign of such activity, Kasper said, is the presence of a portable toilet.

Lonnie Hendry, director of commercial appraisals, explained to Council that the district has been working hard to improve such appraisals using data mining. That means the district looks at information that publicly traded companies are required to disclose about financing for various commercial properties.

In addition, he said, the district is able to learn about commercial property values when properties are refinanced.

The appraisal district saw 116,000 protests of assessed property values in 2016, which according to Hendry is a new record. He noted that the increased number of protests did not mean TCAD had more time to make decisions, but it did mean that it had to speed up the process because of a state deadline. The district managed to do that by adding staff, he noted.

In addition, property owners filed 703 lawsuits in 2016 – also a record number.

Adler and Mayor Pro Tem Kathie Tovo pushed for an unsuccessful lawsuit against TCAD challenging commercial appraisals. In that suit, they argued that low appraisal values assigned to commercial properties put a higher burden on residential property owners.

However, the trial court and the 3rd Court of Appeals firmly rejected the argument, ruling that the matter should be resolved by the Texas Legislature, not the courts.

The current system raises “questions about fairness and equity, especially with the appraisal district having to enter into this with its hands tied behind its back, without the resources to do the work it needs,” Adler said. He was referring to the fact that state law makes it difficult for appraisers to obtain residential or commercial sales prices on properties.

State Rep. Diego Bernal (San Antonio) has filed House Bill 379 for the upcoming session. It would require disclosure of a property’s sales price upon the filing with the county clerk’s office of a deed or other instrument conveying ownership, with an exception for instruments relating solely to mineral rights.

But supporters of the measure shouldn’t cheer just yet. Similar bills have been introduced in the past and made no progress toward passage.

Photo by the Grand Canyon National Park made available through a Creative Commons license.

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