When the COVID recession hit in 2020 there was an understandable concern and anticipation that sales taxes and income taxes were going to be severely depressed and a shortfall in tax revenues would ensue. Commerce was at a standstill, and as COVID progressed, red states tended to be open for business more than traditional blue states.
Notably, there was less of a shortfall than was originally anticipated at the beginning of the recession. The second notable thought was that property taxes would need to make up the difference in shortfalls from declining sales and income taxes. In many jurisdictions this is still the prevailing fear.
The stimulus bill that just passed by the Biden Administration will, in theory, provide the necessary funds to all the state and local governments to assist in eradicating their budgetary shortfalls. The pressure state and local governments may have felt to increase their property taxes is not as much of a concern any longer. This theory should, as one might expect, flow through to the assessors and limit any property tax hikes.
Inflationary pressure will be contemplated going into the future with the unprecedented amount of stimulus flowing into the economy. Expect to pay more in taxes and CPI items. One of the positive aspects of real estate is that it is known as an inflationary hedge. Real estate investors in this type of environment lean towards the real estate investments rather than the stock market.
Increased regulatory environments will likely have an upward pressure on energy costs. Energy costs are comparable to a universal tax. It is conceivable that all costs associated with construction will continue to increase.
The increase in construction costs will have to be recaptured in some form. There will be projects that are scrapped due to inflation. Those that make it to the finish line will pass through increased costs in the form of higher rents. Inflationary pressure leads to increased assessments. Over time it is possible to see an increase in property tax as well.
Contact Info
To learn more about how property tax issues can affect your investing strategies, please reach out to Tim Feagans directly at tim.feagans@retcgroup.com.
