Property tax relief could be on the way for Minnesotans, but students shouldn’t anticipate lower rent as a result.
The projected $2.17 billion surplus for the state’s biennial budget could mean tax relief for property owners, but many say the savings won’t pass from landlords to renters.
Republican Gov. Tim Pawlenty has said the surplus will hopefully bring property tax relief, and the DFL legislative majorities are also looking into the proposal.
Hue Nguyen, Minnesota Senate Tax Committee administrator, said it’s too soon to know exactly what to do with the budget surplus.
There are still concerns stemming from the housing market, which looks like it’s slowing down for the first time in decades, affecting employment and industry revenue.
The committees will hold hearings with stakeholders before making a comprehensive plan for the surplus, Nguyen said.
“I know that the three areas we’re looking into are education, health care and property tax reform,” she said.
The Department of Revenue has projected property taxes will increase by 8.2 percent next year, above the three-year average of 7 percent.
Jason Klohs has 10 properties in the Marcy-Holmes and Como neighborhoods. He said property taxes have an effect on rent, but not as much as market forces.
Renters looking for a place to live know average rents in an area, he said. A lower-end housing unit probably costs around $400 each month for a bedroom; a higher-end unit costs about $500.
Klohs said he can’t raise rents to $550 all of a sudden just because taxes have increased.
“I’m not going to be able to rent because I’m outside of the market (price),” he said.
He said his property tax rates increased by 19 to 32 percent last year, but he hasn’t increased rent because the market won’t bear it.
Paul Lipetzky, who owns 20 apartments in the Prospect Park neighborhood, said rising property taxes and other costs necessitated hiking rents in his properties.
Rent will go up by $25 at the beginning of next year, as a result of gas costs rising $38 a month per unit in the previous year, he said.
“The market sets a limit on how much I can charge for my rental property, but, on the other hand, I’m not going to stay in business if I can’t make a return on my investment,” Lipetzky said. “I try to balance the two out.”
He said one of the biggest changes was his property values nearly doubling over the past few years, resulting in higher tax payments.
Mark Matasovsky is president of MATCOM Property Management and rents properties to 300 to 400 students near the University and in other areas.
Student renters don’t understand that about 20 to 25 percent of rent goes to taxes, he said, and as a result renters aren’t organized as well as other groups, like homeowners, to fight them.
He said homeowners would never allow this much of their monthly payments to go to taxes, so they join groups and lobby against soaring property taxes.
“It’s a nice group to beat the hell out of if you’re a state legislator,” he said.
Legislators can call it taxing the landlord, but it trickles down to the renters, Matasovsky said.
If there was property tax relief, he said he would advise his investors to put the money into the properties.
Another proponent of using the savings for property improvements is Lucy Brown Minn, CEO of Lupe Development Partners. She said maintenance, insurance costs and the age and condition of the building also influence rental costs.
Property tax breaks wouldn’t lead to lower rents in her properties, she said.
“I would probably not plan to lower rents, but I certainly would consider making improvements to my properties earlier than anticipated in order to provide safe and comfortable living environments for my tenants,” Minn said.
