Tax hike to mean higher rent rates

Lessors say rent is going up because of property taxes and higher demand for housing.

Evelina Smirnitskaya

Though the new year has barely begun, landlords in the University of Minnesota area are already hard at work advertising for fall housing, and potential tenants could be paying more.
Recent property tax increases in Minneapolis are causing some property owners to look at raising rent.
This month the cityâÄôs assessorâÄôs office began sending out property value notices to its residents. The value listed on the statement will be used to determine 2012 property taxes.
In December the City Council passed a 4.7 percent levy property tax increase as part of its new budget. The original increase proposed by Minneapolis Mayor R.T. Rybak was 6.5 percent. Combined with fees from the county and school boards, that would have translated to anywhere between a 12 percent and 15 percent property tax increase for individual property owners, Ward 2 City Council Member Cam Gordon said.
The communityâÄôs reaction was overwhelmingly negative, and the city was forced to compromise and bring the increase down to 4.7 percent.
Gordon said the property tax increase could easily trickle down and mean higher rents.
âÄúA lot of time what happens with taxes, if itâÄôs a rental property, [is] the property taxes get passed along to renters,âÄù he said.
For Tim Harmsen, co-owner of Dinkytown Rentals, the estimated increase to his property tax under the original plan was around $75,000 âÄî or 18 percent more than he would normally pay. Such a hike would mean raising rent on his properties. Harmsen is currently waiting for the 4.7 percent-based evaluation before he can go through each property and decide what needs to be done.
But according to Gordon, the reduction from 6.5 to 4.7 percent means only about $30 to $50 in savings per individual household âÄî at least for the University area neighborhoods.
Wealthier properties saw a larger reduction, Gordon said, but overall it âÄúwasnâÄôt that significant of an impact.âÄù
Gordon said even without the city raising the levy, property owners would still see an increase just because of the economy. With the state government battling its budget and predictions of funding cuts to the city, he said next yearâÄôs property taxes are likely to be raised again.
Harmsen said though everyone should pay a property tax, at some point, the increases get to be too much.
Dinkytown Rentals has already leased most of its units for the year, and for now the rent rates are locked in. But if the property tax estimation Harmsen receives from the assessorâÄôs office is not much lower than the original projection, Harmsen will have to make up the difference by raising rent in future years.
âÄúIt means everybody is going to pay more rent,âÄù he said.
Harmsen said other owners in the area are being hit by the increase and that âÄúeverybody is kind of in the same situation.âÄù
But one lessor attributed higher rent rates to higher demand.
Justin Matasovsky with Matcom Property Management Inc., which leases properties in the University area, said rents are going up across Twin Cities by 2 to 3 percent.
He said that higher demand, rather than higher property taxes, is causing the hike. As people are realizing home ownership might not be for them, he said, âÄúthere [are] more people in the rental pool.âÄù