Real estate: Study: More and more municipalities with high property tax assessment rates

Cities and municipalities in Germany are reaching ever deeper into their citizens’ pockets when it comes to property taxes. Last year, 53 percent of municipalities had a tax rate of 400 or more. For comparison: in 2005 only five percent fell into this high-tax group. This is shown by an analysis by the consulting and auditing company EY. Conversely, in 2005, 22 percent of municipalities had a tax rate below the 300 mark. Last year it was three percent.

For municipalities, property tax is one of the most important sources of income, from which, for example, roads, swimming pools and theaters are financed. It is an annual tax on the ownership of land and buildings. Landlords can also pass them on to tenants. How much has to be paid depends on the property, the building on it and the municipal assessment rate. This is set out in municipal tax law. It is a factor that is used to determine the trade tax of companies. The higher the assessment rate, the higher the tax. The municipalities set the assessment rates themselves.

For most apartment or house owners it’s a few hundred euros a year, while for owners of apartment buildings it’s often four-digit amounts. From 2025, the property tax due on real estate must be calculated on a new basis. The background is a decision by the Federal Constitutional Court, according to which the previous assessment basis in Germany was unconstitutional.

The trend towards higher assessment rates is accelerating

According to EY expert Heinrich Fleischer, numerous cities and municipalities have their backs against the wall financially: “The persistently poor financial situation of many municipalities often requires an increase in assessment rates.” Like citizens, they would have to struggle with cost increases that they would have to pass on. The nationwide trend towards ever higher property tax assessment rates has accelerated further.

According to Fleischer, a “veritable wave of tax increases” can be observed before the property tax reform comes into force. In his opinion, this will continue in the current year – also in order to be able to keep the promise not to burden citizens additionally with the new property tax law. He doubted whether this would be successful: “The temptation to generate additional income as a result of the switch to the new property tax model is very great.” Given the weak economic situation, according to Fleischer, the scope for local authorities is likely to become smaller rather than larger.

Only 49 municipalities lower the assessment rate

According to the analysis, 2,671 – and therefore a good quarter of all cities and municipalities – increased the assessment rate last year. In 2022, the proportion of municipalities that had increased the rate within a year was 13 percent, compared to eight percent a year earlier. In contrast, there were virtually no reductions in 2023: According to the analysis, only 49 of the almost 10,800 municipalities in Germany reduced the assessment rate. That corresponds to 0.4 percent.

The nationwide average rate was 409 percent last year – 18 percentage points higher than in 2022. This was by far the largest increase since the investigations began in 2005. At that time, the average was 317. The sharp increase is primarily due to a development in Rhineland-Palatinate: Four out of five municipalities there increased the property tax assessment rate in 2023. According to EY, this was due to a reform of the municipal financial equalization system. In order to avoid loss of income, many cities and municipalities would have had to raise the assessment rates, some significantly, it was said.

The federal state with the highest average assessment rates was North Rhine-Westphalia (577), followed by Hesse (507) and Rhineland-Palatinate (464). The municipalities in Schleswig-Holstein (348), Bavaria (355) and Baden-Württemberg (370) had the lowest rates on average last year. According to previous information from the Federal Statistical Office, property tax B brought around 15.1 billion euros into the coffers in 2023.