If you rent an apartment in the state of Minnesota, there's a good chance your rent will go up next year. High demand and the fewest vacancies in 10 years are two big reasons. But there's another factor pushing rents up: a state change in property taxes.
In an effort to save about $261 million a year, state lawmakers this year overhauled a program designed to give property tax relief to homeowners.
But in the process they caused local property tax burdens to shift away from lower value homes and onto other types of property. "Higher value homes get hit by increased taxes. So do commercial properties, industrial properties. So do apartments," said Chris Samuel, who calculates property taxes for Ramsey County.
The tax increases will vary widely from city to city. But the Minnesota House Research department estimates apartment buildings around the state could see an average property tax increase of 4.6 percent, even if local governments don't increase their tax levies.
Many cities, school districts and counties are in fact proposing to raise those levies, adding upward pressure on property taxes.
An informal survey of landlords gathered at the Minnesota Multi Housing Association's annual convention in St. Paul last week found many considering rent increases next year as a result of the expected tax increase.
"We have to maintain our own profits, so we can stay in business and can continue improving our property," said Steve Gronseth, who owns four apartment buildings in the Rochester area. "As our overall costs go up, we have to raise the rents."
Situations vary, but the state Department of Revenue estimates that property taxes typically make up about 15 percent of rent.
Rent increases have a disproportionate impact on low-income Minnesotans. The average income for a renter in the state has dropped more than 20 percent in the past decade when adjusted for inflation, according to the Minnesota Housing Partnership.
"We have budgets," said Hilary Whitham, who rents a one-bedroom apartment in St. Paul. "We have little Excel spreadsheets that are counting our $10, and those things matter."
Whitham's monthly rent is $595, and it gobbles up more than a third of the $1,500 she earns every month as a research assistant at the University of Minnesota.
Whitham has lived in her building for three years with no rent increases, but that could change soon.
In St. Paul, the average apartment building property tax could rise by 16 percent next year, Ramsey County officials estimate, based on proposed city, county and school district tax levies. An additional factor is that, unlike much of the real estate market, property values for larger apartment buildings have risen slightly in the past year, Samuel said.
But more than a third of the increase can be attributed to the changes made in this year's state budget. The budget also reduced funding for a program designed to reimburse low-income tenants for the property taxes that get rolled into their rents. State lawmakers cut $26 million dollars out of the Renter's Refund program. The average refund check will be reduced by $87 dollars next year.
"It will be a challenge for these people to continue to meet their basic needs as they see the impact of these cuts." said Nan Madden, who directs the Minnesota Budget Project at the Minnesota Council of Nonprofits.
Asked whether there was any good news for renters in this year's state budget, Madden said she couldn't think of any.