Researchers Investigate How New City Incorporations Raise Residential Values and Property Taxes
By Carlianne Patrick, Assistant Professor of Economics, Andrew Young School of Policy Studies
If efforts to create the proposed City of Eagle’s Landing in Henry County are successful, metro Atlanta will see its 11th new municipal incorporation since 2005. More than 200 new municipal governments have been incorporated in metropolitan counties across the U.S. since 2000.
My research colleagues and I expect this demand for new cities to continue as part of a trend to voluntarily form municipal governments that provide public goods and services in discrete geographic areas such as special purpose districts, homeowner’s associations and community improvement districts.
I recently examined the incorporation of seven new cities in metro Atlanta, starting with Sandy Springs in 2005 and ending with Brookhaven in 2012, with my colleague Christopher Mothorpe of the College of Charleston. In our research, we examined housing transactions for each city, before and after incorporation, from 2000 to 2014. Our findings have been published in the article, “Demand for New Cities: Property Value Capitalization of Municipal Incorporation.” (Regional Science and Urban Economics, 2017)
It is important for both counties and those who support new municipal governments to consider the fiscal consequences of incorporation. This knowledge, coupled with answers to two significant questions, will aid policymakers on both sides of an incorporation effort.
First, does home buyer behavior reveal that, on average, residents value the net benefit of incorporation? Second, how might the new city’s property tax base change?
Our findings confirm the formation of new cities as one response to counties that provide urban services to increasingly diverse populations in unincorporated areas. Metro Atlanta’s rapid population growth in recent decades increased the demand for public services as well as population heterogeneity.
In response, people voluntarily chose to incur additional costs to receive the real and perceived benefits of having a municipal – rather than county – government provide public services. Municipal incorporations may have also been used as a way to limit redistribution through taxes and public goods.
We also found the most important predictor for putting a parcel “at risk” of being included in a newly incorporated city was its potential for redistribution, or how much higher the property values (and thus property taxes) were in the parcel’s neighborhood than in the unincorporated area.
When a city incorporated, we found the residential property values and property taxes in the new city more likely to increase. Property values can rise 4 to 5 percent within two years after the new municipality forms. Over time, property values in these cities can rise 12 to 13 percent.
Our findings suggest home buyers value the decentralized provision, local control, curtailed redistribution and limited interactions with groups of different people associated with new city formation, despite the associated increase in property taxes. They also suggest there may be unexplored equity consequences associated with the formation of new city governments to provide public goods.