DENVER — Like much of the country, Colorado’s home values have skyrocketed in the past year. S&P Dow Jones Indices reports that in the past 12 months Denver’s index for home values was up 20%.
“What it means to me is simply that if you own the house in Denver, at the end of at the end of 2020, it's probably worth about 20% more now than it was then,” said Craig Lazzara, the managing director of S&P Dow Jones Indices. “Prices have almost never increased this rapidly in the time for which we have data.”
Lazarra says that for the past several months, most markets have seen prices increase at a slower rate, however they are still going up.
For a home that was valued at $400,000 previously, the one-year increase would make the home’s value $480,000. The increase can be beneficial to those who are trying to sell their homes.
However, for people who are not planning to sell, the increase will only result in higher property taxes.
“Right now, the way things are going wage growth is being way outpaced by the growth in the amount owed on taxes,” said Rep. Alex Valdez, D-Denver.
When the Gallagher Amendment was repealed in 2020, the assessment rate for homes was set at 6.95%.
For that $400,000 home, that means owners would be paying taxes on $27,800 of the house’s value.
To figure out taxes, a home's actual value is multiplied by an assessment rate and a mill rate. Colorado law specifies that properties are to be reassessed every two years, on odd-number years.
With the 20% value increase, the new taxable assessment rate for the same $400,000 home would be $33,360.
“If you're not selling that property, it's an unrealized gain. So, it's not like you have more money in your bank account to pay out in taxes, you're just sitting on an asset,” said Rep. Colin Larson, R-Jefferson County.
Valdez says seniors, those living with disabilities or on fixed incomes will be affected the most by the appreciation in home values and could be priced out of their own homes. He worries this could contribute to things like gentrification,
In an effort to slow the growth, Valdez and Larson have come up with a proposal they want to see on the November ballot.
Initiative 77 slows the rate of growth of assessment values that drive property taxes to 3% of inflation, whichever is less.
For that same $400,000 home, even if the value increases by 20%, the taxable rate would only be $412,000. The assessment rate would be $28,634.
Larson insists the move will not only help homeowners but also businesses and even renters since property taxes are usually passed on to tenants.
“If we want anybody to be able to hire, move here, start those small retail businesses, we're going to quickly find ourselves in an unaffordable place to live if we don't do something,” said Larson.
The pair recently penned an opinion piece in The Denver Post explaining what their ballot proposal would do and why they believe it’s necessary.
Larson and Valdez insist the ballot proposal won’t affect the value of homes or impact how much an owner decides to sell the property for.
They say they have also put safeguards in place like allowing the state to revote on the idea down the line to see if it still makes sense. The two also say this is not a tax cut, it’s just slowing the tax increase.
The downside to the idea, however, is the loss of potential funding for local governments. A legislative fiscal analysis estimated that the measure will decrease property tax revenue to local governments statewide by up to an estimated $1.3 billion in budget year 2023-24.
“Our first round showed $1.3 billion of impact, which is a scary number, but that's what people are paying in addition to what they're paying right now,” said Valdez.
The analysts went on to estimate that the state share of school finance is estimated to increase by a maximum of $360 million in budget year 2023-24, and this state cost will continue to grow in subsequent years.
Nevertheless, Larson insists that if the ballot proposal is successful, local governments will still be getting more money than they ever have before.
“The idea is to give people predictability, so they can now know if this passes in November, every year, their property value for the purpose of what they're going to pay in taxes, it's going to go up 3%,” said Larson.
The proposal’s language still needs to be accepted, then a petition would circulate to get the question on the ballot before voters would be able to weigh in on the idea.