Towns in Connecticut that issue more permits for housing are not only bringing in residents and jobs and encouraging employers to locate there, but they are also delivering to their residents a lower rate of real property tax growth than towns which issue fewer permits.
The tax effect of building more housing is not apparent at an initial glance. The correlation between the number of housing permits issued and rate of change in tax rates is, across all the towns, unremarkable. However, over 68% of the housing permits issued by towns from 2010 through 2022 came from the top 40 towns issuing those permits.
The average number of permits issued by these towns was 395, with a median of 206. The number of issued permits ranged from 5,536 to 457 among the top 40 issuers. A total of 128 of the towns issued between 50 and 900 permits. In other words, over two thirds of the state’s housing, by permitted structure, is being built in less than one quarter of the towns.
There is a compelling benefit the residents of these towns are enjoying. Residents in those top 40 towns were also assessed taxes rates that grew 2 percentage points less during the period than those of the towns which issued the 40 fewest housing permits.
Not incidentally, a growing share of these residents has been renters, rather than owners.
When we compare the 40 towns that issued the most housing permits to the 40 that issued the fewest permits, we observe that mill rates among the highest permitting towns went up an average of 32.2% over the time period, while mill rates among the lowest issuing towns rose at an average rate of 34.2%. Given the uniformity of the distribution of tax rate increases, this two point gap is notable. The towns that issued the fewest housing permits experienced mill rate increases about equal to inflation, while the towns that issued the most permits beat inflation by a considerable margin.
Expressed as cash on a weighted average basis, residents of towns issuing more housing permits spent $2,000 per capita less in property taxes than residents of towns issuing fewer permits over the time period. With an average household size of 2.45 persons, that is $4,900 less paid in property taxes per family within each of those towns. That equates to an additional $90.6 million dollars available for saving and local spending for those residents.
The trending urbanization of Connecticut is well understood. However, the relatively faster population growth in our five cities does not account for the lower rate of tax increases among the 40 highest permitting towns.
While larger town populations are correlated to higher numbers of permits being issued (R ≈ .64) among the 40 towns issuing the greatest number of housing permits, when the comparison is expanded to include all of the state’s towns, it actually turns slightly negative (≈ -.24). That is, population size does not appear to influence the rate of tax increases except among the towns with the largest permitting volume, and, even then, not decisively. Removal of the cities from the data does not change the correlation at all.
Geographic area is also demonstrably unrelated to tax rate increases among these towns. One might anticipate that towns with more space might find room to build more housing. The correlation between land area and number of permits issued is, however, negligible.
That leaves household income. Perhaps wealthier towns are able to indulge in building more housing or provide a locale where investment in housing is particularly attractive. The correlation there is also zero.
In short, encouragement of housing development is a deliberate municipal policy choice. Among the several consequences of that choice is a demonstrable attenuation of property tax increases.
To be sure, establishment of more and more affordable housing should be a mandate of every Connecticut town. Yet, housing is not an exclusive brake on property tax. A broader and deeper tax base is a powerful one, though. The many economic effects associated with availability of housing – from democratizing accession to wealth to ameliorating the velocity of capital – work in concert to persistently cultivate the economic development of the towns where access to housing is facilitated.
Robust and consistent economic development manifests, among other ways, as reduced dependency on local property tax increases, with the result of more cash in the pockets of residents and businesses.
Dan Smolnik is a tax attorney and a member of the Hamden Economic Development Commission. Any views expressed are exclusively those of the author.