Paradigm Tax Group Industry News

Paradigm Tax Group Industry News

Stay informed with the most current Industry News that affects your business and impacts property taxes across the nation.

    Multifamily Boom May Skew Mass Appraisal Systems

    5 Jun, 2014

    Homeownership in the United States has continued to decrease since the onset of the Great Recession in 2007. As homeownership continues to lose its luster, many people across the country are choosing to rent, shifting the housing demand and sparking a construction boom in the multifamily sector. In fact, the multifamily industry may experience the largest construction period in 15 years, as developers are in line to deliver 160,000 new units just this year. While this may seem like good news for the multifamily sector, owners must keep in mind the major impact this construction boom will have on their property taxes. Tax jurisdictions that use computer-assisted mass appraisal (CAMA) systems to simplify the assessment process, in an effort to have more uniform assessments across a property type, are more likely to have skewed results.

    According to the National Real Estate Investor (NREI), properties are categorized by the taxing jurisdiction’s specifications, and the assessor’s office enters actual rental, expense and vacancy data for products within each specific category into the CAMA system. The computer model then produces statistical market-based indices for the various categories, which is used to assess individual properties within categories, rather than using rental and expense information that is unique to that property. The problem is, because the valuations are based on general market data, they are prone to break down during periods of rapid market change, or when the stratifications are not updated in a timely manner.

    This can create a handful of problematic scenarios, according to the NREI. For example, if one end of the sector experiences an oversupply due to construction, like many cities are for the class-A multifamily product, then it causes lower occupancy levels and downward pressure on rents for these properties. This leads to another scenario described as “filtering,” in which new class-A product, with its higher levels of finish and greater amenities, displaces existing class-A product at the high end of the market. The older, formerly class-A buildings effectively join the class-B category, achieving lower rental rates than the newer product. In the latter scenario, the stratifications within the CAMA system must be updated in a timely manner to reflect the new market realities. If they are not, the CAMA system will break down as it aggregates data from dissimilar properties, thus resulting in inflated values for the former class-A buildings.

    For the full article from the National Real Estate Investor, click here.

    Topics: Construction, Real Property, Apartments, Multi Family