Property taxation and local public spending: the renter effect

The point of departure for this study is the pervasive finding that, other things equal, local jurisdictions tend to spend more on local services the larger the fraction of renters among their residents. This paper seeks to determine the approximate magnitude of this “renter effect” by posing the question “How much smaller would local public budgets be if all residents were home-owners?” Making use of two quite different approaches, the paper finds a typical renter effect on local public expenditure on the order of ten percent. This finding suggests that we might do well to reform the administration of the property tax so that changes in property tax liabilities on rental dwellings are directly and visibly transformed into changes of monthly rental payments.