Local taxation and the relationship between incomes and property values

The authors’ concern is with the relationship between household income and property value, within the context of the debate about the fairness of council tax—the property-based system of local taxation in England. Although located within this particular debate, the fundamental issue of the relationship between household income and property value is of relevance to systems of property taxation the world over. Although the empirical literature to date makes reference to the links between property values and income levels in the context of debates about the fairness of council tax, the relationship between the two has not been empirically tested. The authors provide evidence of this relationship and show that, although there is a strong positive relationship between property values and income amongst higher income households, there is evidence of a ‘U-shaped’ relationship among lower income households. In addition, there is very strong evidence, that the elasticity of property prices with respect to income is not constant, but follows a bell-shaped distribution which is skewed to the right.