Colorado is facing a housing crisis due to rising property taxes. A severe housing shortage in Colorado has resulted in sky-high home prices, making it difficult for homeowners and renters to afford their homes. To cover monthly mortgage payments, Common Sense Institute calculated how many hours one would need to work from 2013 to 2023 at the average hourly wage. In the Denver metro area, the increase was 172%, from 42 to 114.
The Gallagher Amendment has governed the calculation of residential property taxes in Colorado for decades. A combination of that formula, disparate price increases, and TABOR prompted the state legislature to refer a repeal measure to Colorado voters in 2020. Finally, voters rejected a long-term replacement for the Gallagher Amendment.
Despite the unexpected surge in home values in 2020, repealing the Gallagher Amendment without a replacement always ran the risk of uncontrolled property tax increases. Homeowners are feeling the effects of this policy change following the latest reassessment period, as well as the lack of solid taxpayer protections. Colorado Legislative Council staff estimate residential property assessed values increased 27% in 2023. As a result of CSI’s analysis of three counties, actual property taxes have increased an average of 36% in Douglas County and over 18% in Boulder and Arapahoe counties, exceeding inflation and wage increases.
The main findings
- During this year’s cost of living increase, Colorado homeowners are primarily affected by property taxes.
- This year, household expenses have increased by 17% just because of property taxes.
- The average homeowner’s expenses increased by 66% as a result of property taxes and other housing expenses.
- During the period from 2013 to 2023, 114 hours of work at the median weekly wage would be required to afford a median-priced home.
Colorado’s middle-class property tax burden is growing at an alarming rate.
For a home valued at $500,000, property taxes are expected to increase between 2024 and 2026 by 32% to 54%.
There were 63% of Coloradans living in counties where the property tax to income ratio was above the national average in 2021.
Compared to other counties in the United States, Denver County has a higher ratio of property taxes to income.
How did Colorado’s property taxes look before 2024?
The tax burden of most Coloradans is higher than the national average, even after adjusting for income. Even though Colorado’s effective tax rates are lower than average, home values have increased rapidly over the past decade.
According to the U.S. Census Bureau, Colorado has the 27th lowest median property tax payment. In terms of median income, the median property tax payment is ranked 20th lowest statewide.
As a percentage of median household income, Colorado’s 12 counties with 63% of the state’s population rank above the U.S. average.
While Denver had the second lowest effective property tax rate in 2021, it had the 20th lowest payment. Denver County has a higher property tax-to-income ratio than 63% of all U.S. counties.
The state’s ability to attract and retain a growing workforce depends on steady and competitive property tax payments.
Colorado’s Property Taxes Without Meaningful Growth Limits: How Will They Compare?
Property taxes in Colorado were precipitated by the repeal of the Gallagher Amendment.
Over time, the Gallagher Amendment lowered residential property tax rates, keeping property tax bills below home value increases. As a result, taxpayers had a greater sense of predictability and stability. For local governments, it reduced revenue stability and predictability.
Several types of property tax limiting measures have been used throughout the U.S. Only three states don’t limit property tax increases. These factors fall into three categories: assessment, rate, and levy.
In most cases, assessment limits restrict the increase of a property’s assessed value. The rate limits restrict changes in property tax millages, either at the individual taxing authority level or at the aggregate level. The amount of revenue increases for each authority or group of authorities is limited by levy limits or revenue limits.
Coloradans were left without meaningful tax limitation structures after the Gallagher Amendment repealed. It is likely that Colorado residents will face some of the fastest-growing property taxes in the country. The majority of homeowners saw significant property tax increases that outpaced inflation, despite some mill levies being reduced to offset assessed value growth.
Statewide assessment rates are expected to increase from 6.7% to 7.15% over the next two years. In 2023, the temporary exemption of $55,000 will end. In Colorado, property taxes will increase even if assessed values remain flat under current law. Within three years, a $500,000 homeowner will see their property tax bills rise by 54% if their value increases 40% in 2023 and then only 7% in 2025.
Over the next three years, a homeowner with a $500,000 home who experienced a 20% value increase in 2023, then a 7% increase in 2025 will see a 32% increase in property taxes.
Over the past few decades, property taxes have had a significant impact on affordability
As home prices and mortgage interest rates have increased, housing affordability has declined significantly. Colorado’s housing affordability reports highlight just how far home prices have outpaced incomes. For today’s average homebuyer earning $800 per week, 114 hours of work would be required each month to buy the median-priced home – 2.7 more than a decade ago.
Because of the Gallagher Amendment’s removal, property taxes will increase significantly this year. A homeowner’s increase in expenditures this year will be accounted for by 17% in property taxes. Over $3,700 has been added to household expenditures in the past year, but nearly $650 has been added to average property taxes.
Prior to the repeal of the Gallagher Amendment, voters and elected officials expected something to replace the longstanding formula governing property taxes. As of yet, it has not arrived, leaving neither taxpayers nor local governments with long-term stability and predictability. There are meaningful tax growth limitations in nearly every state property tax system, providing greater certainty and preventing the need for last-minute legislation to relieve property taxes. As a result of current laws, Colorado homeowners still face large increases in taxes even though the state has enacted annual policy changes that offer limited and temporary relief. It is likely that these increases will further lower Colorado’s relative competitiveness in property taxes and strain the overall affordability of the state.
