Are Property Taxes Capitalized into Housing Prices in Savannah, Georgia? an Investigation of the Market Mechanism
Cebula, Richard J., Journal of Housing Research
This study applies a hedonic pricing model to determine whether property taxes are capitalized into housing prices in the city of Savannah, Georgia. There were sufficient data to study a total of 2,888 single-family houses for the period 2000-2005. Estimating the model in semi-log form reveals that the natural log of the real sales price of a single-family house was in fact negatively affected by the city and county property tax level. Thus, this finding provides further evidence that the market mechanism works when adjusting to property taxation. Interestingly, one of the spatial variables, a binary variable reflecting close proximity to a public school, is positive and statistically significant, an additional finding also consistent in principle with the basic Tiebout (1956) hypothesis.
Hedonic pricing models have been used in a number of studies to assess the impacts of historic district designation and other factors on property values (e.g., Coffin, 1989; Ford, 1989: Asabere and Huffman, 1994; Asabere, Huffman, and Mehdian, 1994; Clark and Herrin, 1997; Coulson and Leichenko, 2001; Leichenko, Coulson, and Listokin, 2001; Coulson and Lalir, 2005; and Sirmans, Macpherson and Zeitz, 2005). The present study seeks to extend the latter literature by applying the hedonic pricing model to the prices of single-family homes in the city of Savannah, Georgia (including the Savannah Historic-Landmark District, which is a part of the city) with emphasis on the question of whether property taxes are capitalized into housing prices.
Sales of single-family houses per se within the city of Savannah for which adequate data were available for the study period 2000-2005 are included in the study. In all, 591 singlefamily homes sales from the Savannah Historic Landmark District per se are included in the analysis, along with 2,297 single-family home sales from the city of Savannah outside the "Historic Landmark District." The relatively large volume of home sales data available from this historic district vis-à-vis most previous related studies may be interpreted in part as a reflection of the fact that the Savannah Historic Landmark District is in fact the largest such district in the U.S.1
In addition to focusing upon the issue of whether property taxes are capitalized into housing prices in the city of Savannah, this study accounts for a number of other factors influencing the housing market. For example, it integrates a variable (HISTDES) to reflect whether a home sale involved a building officially designated as a national historic landmark. It also distinguishes between home sales within the Savannah Historic Landmark District on the one hand and other home sales in the city of Savannah on the other hand in order to capture any premium that may be applied to sales of the former variety (Sirmans, Macpherson, and Zeitz, 2005). A dummy variable (DISTRICT) is included in the model to reflect this distinction. As in a number of other related studies, spatial control variables are included in the model; in the present specification, nine such variables are included.
In the next section of this paper, the Tiebout (1956)/Tiebout (1956)-Tullock (1971) hypothesis is briefly reviewed and then the hedonic pricing model is provided, along with a description of the data. Following conventional practice in the literature, the model is estimated in semi-Jog form. The results are provided and analyzed in the subsequent section of the study. The conclusion provides a summary of the results.
Framework for the Empirical Analysis
This section of the study provides the framework within which the hedonic pricing model is applied to housing sales in the Savannah Historic Landmark District and the city of Savannah of which it is a part. First, however, given the emphasis on the issue of whether property taxes are capitalized into housing prices in the Savannah housing market, the Tiebout (1956) /Tiebout (1956)-Tullock (1971) hypothesis is briefly summarized. …