The Property Tax Gap

The same house, priced by state

Each state’s average effective rate applied to one $400,000 home, so the only variable is the rate itself.

Set against the $2,023 monthly principal-and-interest payment on that house at 6.5%, New Jersey’s annual bill is 4.4 monthly payments. Hawaii’s is 0.5. In 2 states the yearly tax exceeds four monthly payments: New Jersey, Illinois.

The part every “lowest property tax” list gets wrong

Everything above holds the house constant, which is the honest way to compare rates. It is not how anybody actually buys. A rate is one half of a multiplication, and the other half — what homes cost in that state — moves further than the rate does.

Hawaii has the lowest effective property tax rate in the country at 0.27%. On its own median home of $808,200, the bill is $2,183 — more than 3.0 times what an owner pays in Alabama, whose rate is 0.38%, higher on paper.

The states that move furthest between the two rankings

Both rankings are of the same fifty states in the same year. Which one is right depends entirely on the question: the rate ranking answers “how hard does this state tax property”, and the bill ranking answers “what will I actually pay”. Almost every list published under the second question is quietly answering the first.

Assumptions, disclosed

• Statewide averages, not your parcel. An effective rate is annual tax paid divided by home value, averaged across the state. Counties inside one state routinely differ by a factor of two, so no individual owner pays exactly these figures. The county assessor is the only authority on a specific address.
• The $400,000 house is a control, not a typical purchase. Holding price constant is what isolates the rate. It also means the first table says nothing about affordability: a $400,000 home is far below the median in some of these states and well above it in others. That is the whole point of the second half of this article.
• Exemptions are not deducted. Homestead and other exemptions reduce real bills, sometimes substantially, and eligibility depends on facts this dataset does not hold. Each state page describes the exemptions that state offers.
• The rate comparison prices interest only. The $2,578 figure is the change in principal and interest on a $320,000 loan over 30 years. It is there to give the tax gap a familiar yardstick, not to suggest the two are interchangeable — a rate can be refinanced, and a state cannot.