Texas Property Tax Proposal Sparks Debate Over Appraisal Caps and Market Impact

Governor Greg Abbott's 2026 reelection campaign includes a proposal to tighten the cap on annual property value increases from 10% to 3%, extending this limit to all types of properties beyond primary residences. This measure aims to provide homeowners and businesses in Texas greater predictability in property tax bills, addressing concerns about rising property values and tax liabilities amid the state's economic growth and housing market pressures. Currently, Texas limits the annual taxable value increase for homeowners' primary residences to 10%, a policy dating back to the 1990s. Abbott's plan would expand this restriction to commercial properties, such as grocery stores, restaurants, and apartments, seeking to moderate sudden tax increases. While Abbott frames the proposal as a solution to property tax burdens, tax policy experts across the political spectrum express significant skepticism. They argue that such appraisal caps mimic California's Proposition 13, which resulted in long-term negative effects including market distortions, inequities between new and long-time property owners, and ultimately higher housing costs. Experts explain that taxing authorities typically adjust tax rates to meet revenue needs, so capping appraisal increases may lead to higher tax rates elsewhere, negating relief for taxpayers. This dynamic was observed in Texas counties after a similar 20% appraisal cap enacted in 2023, where tax rates rose to offset the capped property values. The proposed appraisal cap also risks creating disparities, disproportionately benefiting established property owners while putting first-time homeowners and new businesses at a disadvantage. This concern highlights equity issues and potential barriers to market mobility, affecting younger families and new entrants into the housing and business markets. Critics highlight alternative approaches such as "circuit breaker" programs that limit property tax burdens relative to income, a policy adopted in approximately 30 states and the District of Columbia. These programs particularly aid lower- and moderate-income households. Texas has previously considered such measures but faces challenges due to the absence of a state income tax and verification mechanisms. Abbott's platform does not address rising homeowners' insurance costs or the broader housing shortage that contributes to increased home prices and rents in Texas. Though bipartisan legislation to ease housing construction red tape was passed, further measures on housing affordability remain unclear. The plan also omits direct relief for renters, focusing on property owners by way of appraisal caps on rental property owners. This approach contrasts with other states that provide direct renter assistance through tax credit or rebate programs. State legislative approval is necessary for Abbott's proposals to be enacted. However, Abbott is expected to face opposition from influential lawmakers such as Lt. Gov. Dan Patrick, particularly on the stricter appraisal cap component. The Texas Taxpayers and Research Association and Rice University's Baker Institute have contributed research highlighting the fiscal impacts of appraisal caps. While Abbott's campaign emphasizes taxpayer savings, the debate continues over the effectiveness and consequences of appraisal caps as a property tax strategy. Overall, Abbott's appraisal cap initiative forms a central part of his property tax relief agenda but faces critical analysis regarding its practical outcomes, potential regressiveness, and market effects, underscoring the complexity of property tax reform in Texas.