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Texas property tax appraisals set to increase again for 2023

Insight Texas Property Tax Appraisals Set to Increase Again

April 20, 2023

7 min read

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Is House Bill 2’s appraisal cap the solution?


Property taxes are always a hot topic in Texas, but even more so this spring. Property owners across Texas are beginning to receive appraisal notices – and in Harris County in particular, values have made another sizeable jump. The state legislature is presently considering two bills aimed at easing property tax burdens across the state. If passed, both the House and Senate bills would use state funds to provide some welcome relief in the form of reduced school tax rates. House Bill 2 goes further, proposing a 5% cap on appraisal increases for all property types.

In light of significant appraisal rate hikes, the proposed appraisal cap may be interpreted as a relief for many Harris County property owners. However - if you own commercial real estate in Texas, it is important to understand what these appraisal increases really mean, what action you can take when you receive your appraisal, and how an appraisal cap could actually increase your property taxes.



Harris County commercial appraisals show an average increase of 20%


According to the Harris County Central Appraisal District (CAD), the values of commercial properties jumped by 20% on average between the previous valuation date and the beginning of this year. The County’s appraisals show average increases in each commercial sector:

  • Land: 17% increase

  • Multi-family: 26.6% increase

  • Hotels: 10.8% increase

  • Medical and Office: 13.5-14% increase

  • Retail: 20.3% increase

  • Warehouse: 22% increase

The overall assessment increase for commercial properties (before new development) was 20%. The appraised value has increased for 75.9% of parcels - while 21.5% remain unchanged, and 2.6% are now seeing lower values.



Higher appraisals don’t necessarily result in higher property taxes


The total of all appraised values in the county is called the assessment base, which is the denominator used to calculate the tax rate. The total funds needed to be raised through the property tax are divided by the assessment base to determine the tax rate. If the total value of the assessment base goes up, the tax rate goes down to compensate. With this in mind, if the appraised value of your property has increased by less than the 20% average, your taxes might actually be lower this year than last.



The appraisers may not have it right


Properties in Texas are reappraised annually. The increases reported in Harris County are purported to reflect the change in market value from January 1, 2022 to January 1, 2023.

According to data released by the CAD, appraised values for office buildings have increased by 13.5% overall. This is a surprising outcome, as the challenges facing this sector continued through 2022; ongoing vacancy rates are above 23% and rents remain stagnant.

Appraised values for apartment buildings in Harris County are up by 26.6%, although rents increased by only 5% year over year. In addition, according to data provided by the appraisal district, the average price per unit declined each quarter from Q4 2021 to Q3 2022. The CAD’s data suggests that sale prices in Harris County rebounded sharply in Q4 2022 – while median prices in the US and Texas dropped.

If rents have risen only slightly or not at all, vacancy remains stagnant, and costs are up – the only possible reason for value increases would be a drop in capitalization rates. To support a drop in capitalization rates, we would expect to see properties transacting at higher prices.

Sales data gathered by Altus shows that prices in Harris County actually decreased between January 1, 2022 and January 1, 2023. The charts below show the 90-day rolling average sale price per square foot in four market segments – industrial, multi-family, office and retail. The data indicates that sale prices per square foot for industrial and office peaked prior to Q1 of 2021, while retail peaked in Q3 of 2021, and prices in all three sectors declined through 2022 and 2023. While multi-family sales prices per square foot did nudge upward, the lift from $63 to $65 per square foot does not suggest a 26% increase in values.


Figure 1 - Houston – The Woodlands – Sugarland Texas MSA (Source: Altus Group)

Image Insight Houston The Woodlands Sugarland TX

The Harris County appraisal increases are not supported by the data. Based on our analysis, values should have actually dropped with the update from a January 1, 2022 to a January 1, 2023 valuation date.

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You can take action to change your appraisal and reduce your property tax


Your property’s experience and circumstances may not be consistent with the overall market, but should be taken into account when determining the appraised value.

There are two steps every commercial property owner should take when they receive a notice of appraisal from the county.



1. Review your appraisal notice


  • Does the assessor have the correct data (e.g. bldg. size, lot size, # of units)

  • Is the ownership information correct?

  • Have you verified that the appraisal reflects the value of your property as of January 1, 2023?

  • Is the appraised value fair by comparison to similar properties?



2. Consider filing a review request, protest or lawsuit


  • The deadline to protest is printed on your appraisal notice

  • Discuss your appraisal with a property tax expert

  • Exercise your constitutional rights to an administrative and judicial appeal

  • In most cases, appraisal errors can be corrected before your tax bill is issued



Are appraisal caps the solution?


Taken at face value, a 5% cap sounds better than a 20% increase, and would benefit some owners in the short term. And while the negative consequences of a cap are not as easy to visualize, it's important to understand that they would be widespread and long-lasting. As noted by the Texas Association of Property Tax Professionals (TAPTP), some of the problems with a cap include:

  • The cap reduces the value of the assessment base, which means that tax rates go up

  • Caps put new construction and new purchasers at a competitive disadvantage, and discourage investment in the marketplace

  • Over time, in a capped appraisal system the equity and uniformity of taxes is eroded completely. Identical buildings can have very different tax rates depending on the date they were purchased.

In Harris County this year, the appraisal values of more than 25% of commercial properties dropped or remained the same. If an appraisal cap is implemented, these properties will pay more tax than they would without the cap. Additionally, assets which appreciate at slower rates, or which decline in value over time (such as personal property), will pay higher rates to subsidize assets which are rapidly increasing in value.

New construction and sold properties will be initially assessed at full value and protected from increases of more than 5% in the future. As a result, property tax costs for new development will be substantially higher than existing inventory – and will remain higher over time. Moreover, high interest rates and construction costs are already making development more expensive, while the added tax burden may make some projects financially unfeasible.

Properties held over a longer period will have lower tax rates than newly purchased properties. This will lead to significant tax inequity between similar properties and make it more difficult for new businesses and owners to compete. A more detailed analysis of the potential impact of appraisal caps on commercial real estate is provided in: Appraisal caps in Texas: A review of proposed property tax legislation.

The best way to address out-of-touch appraisals is to review your notice and file a protest if needed.

Texas’ property tax system is among the best in the world, with annual reappraisal, the right to equal and uniform taxation, and a swift and efficient system to correct appraisals. When the appraiser sets an incorrect or unfair value, we can correct it before the taxes are due. An appraisal cap does not reduce the tax burden, it just redistributes it – saving taxes for some and increasing taxes for others. A more fair and equitable solution, which is already part of both the House and Senate property tax proposals, is to use state funds to reduce costs, while ensuring the amount of money that’s collected is sufficient to operate our schools, and maintain and operate our communities.



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Sandi Prendergast

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Christopher Daughtery

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Sandi Prendergast

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Christopher Daughtery

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