Are Property Taxes Capitalized into Housing Prices in Savannah, Georgia? An Investigation of the Market Mechanism

Abstract

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.