The consulting firm EY has observed a surge in property tax increases ahead of the first application of the new property tax law in 2025. German municipalities significantly raised tax rates in 2023, and many are expected to continue this trend into 2024 in preparation for the 2025 reform, as noted by Heinrich Fleischer, partner in Real Estate, Hospitality & Construction at EY. Despite the new property tax law with updated property values, the reform is meant to keep the tax revenue neutral, as promised politically.

However, Fleischer is skeptical about the promised revenue neutrality. „The trend in property taxes has been rising for years, and recently, even massively“, he explained. Due to the stagnant economy, the financial room for municipalities is expected to shrink in the medium term. „The temptation to generate additional revenue during the transition to the new property tax model is very strong“, noted Fleischer. Businesses are also facing a significant burden from the trade tax. In 2023, 19% of municipalities increased the tax rate.

EY examined data from state statistical offices from 2005 to 2023 for the property tax B (on undeveloped and developed land, excluding agricultural and forestry properties). The revenue solely goes to municipalities. The analysis revealed that tax hikes were particularly common in regions with very poor municipal finances, mainly in western Germany. In contrast, the situation in southern and eastern Germany seems less critical.

According to tax statistics, municipalities collected around 15.1 billion euros in property tax B in 2023. Tax experts expect an increase to 15.6 billion euros in 2024. In 2025, the first year under the new property tax system, 15.8 billion euros are anticipated. By 2029, property tax B revenue could reach 16.6 billion euros. In 2005, the revenue was much lower at 9.9 billion euros, reaching just 12.2 billion euros by 2014.

EY found that the average property tax B rate increased last year by 18 percentage points, the largest rise in decades: from 391% to 409%. A quarter of all German municipalities raised their property tax rates in 2023. In comparison, only 13% did so in 2022 and 8% in 2021.

The highest number of rate hikes occurred in Rhineland-Palatinate, where almost four-fifths of municipalities increased property tax rates. The average assessment rate in Rhineland-Palatinate rose by 69 points to 464%. Rhineland-Palatinate ranks third after North Rhine-Westphalia (577%) and Hesse (507%). The increase in rates was partly due to a reform of municipal financial equalisation in Rhineland-Palatinate, which raised the so-called equalisation rates. Municipalities compensated for revenue losses through rate hikes.

Other federal states also experienced significant increases. In North Rhine-Westphalia, the proportion of municipalities raising the rate grew from 26% to 28%. In Lower Saxony, from 10% to 12%. Lower Saxony's average assessment rate of 406% is in the upper middle range. In contrast, in some states, the dynamics slowed down: In Saarland, 15% of municipalities raised their property tax, down from 19%, while in Baden-Württemberg, the figure dropped from 16% to 9%.

The share of municipalities with an assessment rate of 400% or higher also rose sharply, from 39% to 52%. In 2005, the share was still at 5%. The municipality of Lorch in Hesse has the highest tax rate at 1,050%, followed by Kerzenheim in Rhineland-Palatinate with 1,000%. In some states, most cities and municipalities have refrained from raising their rates for years: In Thuringia, only 4% of municipalities increased their property tax, while in Saxony-Anhalt, Bavaria, and Saxony, the figure was 5%. While 2,671 of Germany's nearly 10,800 municipalities increased their rates last year, only 49 municipalities reduced them.