Will state budget deal force up rents?

If you rent an apartment somewhere in Minnesota, odds are you didn’t pay much attention to the debate in the Legislature over the Market Value Homestead Tax Credit for houses. You should have. It may be about to push your rent up 10 percent or more.

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Looking to break the budget impasse that had shut down Minnesota state government for weeks, lawmakers in July agreed to end that credit, which essentially used state money to pay a portion of local homeowner property taxes to cities and towns.

To close the state budget hole, lawmakers ended the credit. In the past couple weeks, the potential effects that decision have come to light as city and county officials prepare next year’s tax plan.

My MPR News colleague Dave Peters has been following the issue closely. On Friday, he wrote the burden of the tax changes in St. Paul could fall heavily on commercial property owners and apartment owners. Talking to Chris Samuel in Ramsey County’s property tax division, Peters wrote:

The hardest hit? Small commercial properties, like ma and pa stores with a residence on the second floor, and larger apartment buildings, which are actually seeing their values increase, Samuel said. They could be seeing tax increases in the 16 or 17 percent range, he said.

The problem is that without the credit, local officials must spread the tax burden onto business and other properties to make up the lost state money, or else chop their budgets.

“The new system will shift taxes among properties within each community, especially to commercial, industrial, apartment, and other properties that will not receive the benefit of the homestead market value exclusion,” says the League of Minnesota Cities.

The question then becomes how do apartment owners react if that happens? It’s a decent guess that much of that will get passed on to renters.

The residential rental market is incredibly tight and vacancies have plummeted the past few years.

Here’s a Minnesota Housing Partnership chart on the Twin Cities.

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MHP recently wrote that rental vacancies fell to 2.4 percent, a 10-year low, noting a five percent rate is typically considered “balanced.”

One other thing: Lawmakers also balanced the budget by cutting the state’s renter’s credit, intended to help low and moderate income renters. The non-profit Minnesota Budget Project writes:

The Renters’ Credit will be cut by $26 million in FY 2013, or 13 percent, starting with refunds filed in 2012. An estimated 297,000 Minnesota households will lose an average of $87 because of this cut. About 7,300 Minnesota households will lose their entire credit.

Even without the legislative changes, renters were likely facing an increase because of the tight supply. Now, a budget deal focused on homeowners and property taxes may end up pushing up costs for apartments by double digits.

  • C Dryke

    If the state isn’t giving the homeowner a credit, then the homeowner will be paying the full tax amount. Was the state giving the local taxing entities more than the credit the individual taxpayer received?

  • Del Foley

    Looks like alot of elected officials will be replaced when they come up for re-election….