A reader responding to two recent Below Deck reports about Nantucket’s housing pressures raised a concern that surfaces frequently in expensive real estate markets.

 

“If a neighbor builds a trophy home — pool, cabana, guest house — our value goes up because of their development,” the reader wrote. “Our homes should be decreasing in value from functional depreciation.”

 

The observation reflects a real dynamic inside the property tax system used across Massachusetts. In Nantucket’s rapidly appreciating real estate market, it can become particularly visible. Understanding why requires looking at how property assessments are calculated.

 

How Property Assessments Work in Massachusetts

Property taxes in Massachusetts are based on assessed value, which is determined by local assessors following standards set by the Massachusetts Department of Revenue. State law requires that property be assessed at 100 percent of its “full and fair cash value,” essentially the price a willing buyer would pay a willing seller on the open market. 

 

This means the tax system is designed to mirror the real estate market itself.

 

Assessors must analyze:

• recent property sales
• comparable properties in the area
• neighborhood trends
• land values
• property characteristics

 

This approach is known as mass appraisal, where large numbers of properties are valued using statistical analysis of market data.  In Massachusetts, properties must be revalued regularly to ensure assessments remain close to market value, with comprehensive revaluations typically occurring every five years and adjustments made in interim years. 

 

The result is a tax system designed to ensure that properties of similar market value pay similar taxes.

 

How Nantucket Calculates Property Taxes

Once the assessed value is determined, the tax bill is calculated by applying the town’s tax rate. On Nantucket, the residential property tax rate is applied per $1,000 of assessed value.

For example, the following are assessed values, and the estimated annual tax:

​

• $1,000,000

about $3,280

​​

• $3,000,000

about $9,800

​

• $5,000,000

about $16,400

 

Because the tax is ad valorem — based on value — tax bills rise when property values rise.

 

Why New Development Can Raise Nearby Assessments

This is the phenomenon the reader was describing. Because assessments are tied to market value, assessors rely heavily on comparable sales in a neighborhood.

 

If nearby properties sell for higher prices, or if large luxury homes replace older houses, those transactions can influence the estimated value of surrounding properties.

 

In markets like Nantucket, where redevelopment is common, that process can look like this:

1. A modest house sells for $2 million.

2. The buyer demolishes it and builds a $12 million waterfront home.

3. Nearby properties are now located in a neighborhood with higher market sales.

 

Even if neighboring homes are older or smaller, the underlying land value may rise significantly.

 

Land vs. Structure: A Key Shift

In many Nantucket neighborhoods today, the land itself represents the majority of property value. Here's an example:​ Structure, $700,000; Land, $3,000,000; Total assessment, $3.7 million.
 

This dynamic can create a situation where the building itself is depreciating, but the land value is increasing faster than the structure loses value. Appraisers sometimes refer to this phenomenon informally as “teardown economics.” In high-demand markets, older homes are often valued primarily for the land beneath them.

 

Functional Depreciation vs. Land Appreciation

The reader’s reference to functional depreciation reflects a legitimate appraisal concept.

 

Over time, buildings typically lose value because of:

• aging systems
• outdated layouts
• smaller square footage
• older construction standards

 

But in a place like Nantucket, these depreciation factors are often overwhelmed by rapid increases in land value. Even if the house itself becomes less competitive in the market, the location and development potential may drive overall property value upward.

 

Annual Assessment Adjustments

Massachusetts law requires assessors to adjust property values annually so that assessments continue to reflect market conditions. 

 

On Nantucket, fiscal year assessments are based on market value as of January 1 of the previous year, using recent sales data. This means dramatic changes in the real estate market can quickly affect tax valuations.

 

What Homeowners Can Do if They Disagree

Massachusetts law provides a formal process for homeowners who believe their assessment is too high.

 

1. File an abatement request

Property owners can submit an application to their local board of assessors requesting a reduction. Abatement applications are filed through the assessor’s office. 

 

2. Appeal to the Appellate Tax Board

If the request is denied, homeowners may appeal to the state’s Massachusetts Appellate Tax Board. The appeal must generally be filed within a limited timeframe after the local decision. 

 

3. Present evidence

Successful appeals typically rely on:

• comparable sales data
• independent appraisals
• evidence of property condition issues

 

How Often Do Homeowners Seek Abatements?

Across Massachusetts, thousands of property owners file abatement requests each year. Local governments frequently establish advisory committees to review abatement requests and help ensure fairness in the process. 

 

On Nantucket, abatement requests are reviewed by the Board of Assessors, sometimes with advisory committee input. Data on how many applications are filed and granted each year is maintained by the town’s assessor’s office.

​

Why This Issue Is Becoming More Visible

In slower real estate markets, assessment changes tend to be gradual. But Nantucket’s housing market has experienced extraordinary price appreciation in recent years.

 

That creates several ripple effects:

• redevelopment replacing older homes with luxury properties
• rising comparable sales across neighborhoods
• rapidly increasing land values
• higher assessments for nearby properties

 

For longtime homeowners, that can feel like a tax increase driven by development they did not choose.

​

Concerns About Property Taxes and State Policy

Some residents responding to Below Deck’s recent housing coverage expressed broader frustration with the property tax system itself.

 

One reader described rising assessments as “one of the state government’s biggest tax grabs,” arguing that property taxes represent the final layer of taxation on income that has already been taxed elsewhere. While such concerns are common in high-cost housing markets, Massachusetts’ property tax system operates somewhat differently than many residents assume.

 

Property taxes in Massachusetts are primarily local taxes, not state taxes. Municipalities set their own tax rates and collect the revenue directly to fund local services such as schools, police and fire departments, public works, and municipal government. Unlike income or sales taxes, property tax revenue generally does not flow to the state government in Boston.

 

State government does return funds to municipalities through programs such as local aid, school funding, and other transfers, but the majority of property tax revenue remains within the community where it is collected.

 

Still, when assessments rise quickly, particularly in places experiencing rapid real estate appreciation, homeowners may experience the increases as a form of taxation driven by forces outside their control. That perception has become more common in communities where housing values have increased far faster than local incomes.

​

The Larger Housing Context

The issue connects directly to a broader set of housing pressures already visible on Nantucket.

 

Earlier Below Deck reporting found:

• the island’s economy supports more jobs than resident workers
• employers struggle to house employees
• home prices have reached among the highest levels in the country

 

Those trends create a housing system where pressure is felt at multiple levels. Workers may struggle to move onto the island, and some longtime homeowners worry about the rising cost of remaining.

 

The Question Residents Are Raising

The reader who commented framed the issue directly: If development around a property increases its value, and therefore its tax burden, even when the owner has made no improvements, should the system account for that?

 

Massachusetts law currently ties property assessments closely to market value.

But as Nantucket’s housing market continues to escalate, questions about how that system affects longtime residents are likely to remain part of the island’s broader housing conversation.

Read our related story: Case Study: “The Dips” — 30 Devon Street, Tom Nevers

- Nino Abdaladze
Below Deck Contributor
3/14/26