ATLANTA–When a city incorporates, residential property values and property taxes in the new city are more likely to increase, according to a new Georgia State University study.
Property values can rise 4 to 5 percent within two years after the new municipality forms and 12 to 13 percent over time, the researchers said.
In “Demand for New Cities: Property Value Capitalization of Municipal Incorporation,” (Regional Science and Urban Economics, 2017), economist Carlianne Patrick in the Andrew Young School of Policy Studies, and Christopher Mothorpe of the College of Charleston examined the incorporation of seven new cities in metro Atlanta over a decade, beginning with Sandy Springs in 2005.
“The formation of new cities is one response to counties in metro Atlanta and across the U.S. providing urban services to increasingly diverse populations in unincorporated areas,” Patrick said. “People have voluntarily chosen to incur additional costs to receive the real and perceived benefits of having a municipal – rather than county – government provide services. They may also use it as a way to limit redistribution through taxes and public goods.”
The most important predictor for putting a parcel “at risk” of being included in a newly incorporated city, the researchers found, was its potential for such a redistribution, or how much higher the property values (and thus property taxes) were in the parcel’s neighborhood than in the unincorporated area.
Patrick said she conducted the research to help county and new municipal governments consider the fiscal consequences of incorporation.
“I expect we will continue to see a demand for cities in metro Atlanta and similar cities,” she said. “If that is the case, it is important for policymakers to know a couple of things: first, whether home buyer behavior reveals that, on average, they value the net benefit of incorporation and second, how the new city’s property tax base might be expected to change.”