The fiscal externality of multifamily housing and its impact on the property tax: Evidence from cities and schools, 1980–2010

Restrictive Zoning’s Deleterious Impact on the Local Education Property Tax Base

“…Focusing on these two columns, it is clear that restrictive zoning's negative impact on the property tax base may not be limited to just local education expenditures if, in fact, certain non-education services are best viewed as being distributed on an equal per-person basis. Indeed, this pair of estimates is consistent with the earlier evidence on per-person values and dwelling size reported in Gallagher (2016). However, because Table A1's estimates are not as consistently negative and statistically precise as those reported in Table 2 and, as discussed in the paper, because it is not necessarily clear which non-education services are best viewed as being distributed on an equal per-person basis, it is considerably more difficult to draw firm policy conclusions from these estimates.…”

“…Whereas the earlier piece only discussed the implications for zoning policy after having established a causal relationship between the size distribution of a community's housing stock and its property tax base, the current study addresses the reduced-form impact of zoning directly using multiple identification strategies. In this context, it is important to point out that the current study's findings are consistent with those reported in Gallagher (2016) and help to cast further doubt on the efficacy of restrictive zoning laws limiting small dwellings as tools for improving a community's education property tax base or for promoting efficient fiscal federalism within property-tax-funded school systems. These findings are, therefore, particularly relevant to communities that rely heavily on the property tax to fund local public education systems, such as those in Massachusetts.…”

“…The findings reported in Gallagher (2016) motivate this current analysis. Whereas the earlier piece only discussed the implications for zoning policy after having established a causal relationship between the size distribution of a community's housing stock and its property tax base, the current study addresses the reduced-form impact of zoning directly using multiple identification strategies.…”

“…Restrictive zoning laws limiting the development of small homes and apartments are commonly justified on fiscal grounds, the argument being that smaller dwellings within heterogeneous communities are unable to generate enough property tax revenue to fully finance the services that their occupants enjoy. New research has been critical of this argument, however, noting that smaller dwellings tend to have relatively high per-student values, which, for many public services, such as local public education, may be a better measure of a dwelling's property tax base (Gallagher, 2016).…”

“…τ − are the intra-jurisdictional capitalization effects realized by each class of housing when located in heterogeneous communities, with  v being the jurisdiction's average per-capita tax base (across all large and small dwellings), t being the jurisdiction's effective property tax rate, and i being the discount rate. Following Gallagher (2016), it is assumed here that …”