Renters likely to pay more too with proposed property tax hike

Sunday, May 20, 2012 at 10:28pm

Like so many landlords these days, Bryant Meltzer turns to Craigslist when he needs to rent out one of his houses or duplexes. He tapped the website just last week to advertise a two-bedroom home on Elvira Avenue in Inglewood.

With nearly two-dozen rental properties in East Nashville, he’s found a niche: catering to the horde of musicians who have chosen to make the burgeoning neighborhoods on the east side of the Cumberland River home.

“That’s my target audience,” Meltzer said.

The business model seems to work. His units are completely filled –– excluding, of course, that one he just posted on the Internet. He’s looking for $850.

But this seven-year veteran of the rental business is among the scores of landlords and property owners surveying Mayor Karl Dean’s proposed property tax hike, forecasting what the overall 13 percent increase might mean for them and their customers. The answer, it seems, is simple and probably not surprising: Costs will eventually be passed down to renters.

“Unfortunately, I’ll have to increase rent to the tenants,” Meltzer said of the proposed tax hike, estimating he would likely mark his house rentals up by an extra $50 per month. “And that, to me, is awful. That makes a huge difference is somebody’s lifestyle. It’s really sad.”

Since Dean’s May 1 announcement that he plans to pursue Davidson County’s first property tax hike since 2005, the focus has mostly been on how it will affect individual homeowners. The proposal, a 53-cent increase to the combined Urban and General Services rate, would on average increase individual property tax payments annually by $192, or $16 per month.

That also means a likely rent hike for the 44 percent of housing occupied by renters in Davidson County.

That higher taxes on landlords would trickle down as higher costs for renters sounds like standard economics. But the proposal comes at a time in Nashville when more than four in 10 renters are already spending 35 percent or more of their monthly income on rent, according to the census bureau. 

Most financial experts advise people to spend no more than a third of their income on housing. If property taxes go up, critics fear a new burden on renters.

“It’s a misnomer that it only affects property owners,” said Metro Councilman Josh Stites, who has criticized the mayor’s tax hike proposal. 

“These people who live in apartments are going to be affected more, because these apartment owners — especially the big ones that are owned by real estate investment trusts — they’re not going to be just eating those costs,” he said. “They’re going to be passing them right along.”

The mayor’s property tax hike — which would pump an additional $100 million of revenue into Metro’s coffers — cleared a procedural first-reading vote in the council last week. The tax levy adjustment now moves on to a more crucial second of three votes in June, when it will be the subject of greater scrutiny and debate. 

Dean has said the tax hike is necessary to avoid draconian cuts in areas such as police personnel, teachers and firefighters. Moreover, after consecutive years of a stagnant government growth, the mayor maintains that now is the time to address long-neglected infrastructure projects and increase the salaries of starting teachers. 

At-large Councilman Jerry Maynard, who supports Dean’s tax plan, acknowledged that many landlords would likely increase rent. But he suggested lower-income families, who typically rent homes instead of own, would be disproportionately neglected when it comes to key government services if the tax hike doesn’t pass.

“It’s the middle-class neighborhoods, the lower-income neighborhoods, the poor neighborhoods where you need a strong police force and strong schools with resources,” Maynard said. “Because if you don’t, those neighborhoods will suffer more than the wealthier neighborhoods, who won’t be impacted by a lack of police and first-responders.”

 

Davidson County’s property tax rate, which under Dean’s plan would rise to $4.66 in the Urban Services District, is applied to the assessed values of properties to calculate tax payments. For residential single-family homes, the assessed value is 25 percent of the appraised dollar figure. But for properties that include two or more rental units, which thus qualify as commercial property, the
assessed value is 40 percent.

“It nearly doubles your taxes,” Davidson County Property Assessor George Rooker said of the commercial property classification. 

Rent in the Nashville has already been on the rise.

The average monthly rent in Nashville and surrounding counties for the first quarter is $790, according to the Greater Nashville Apartment Association, up from $776 a year ago. Prior to that bump, the average rent had been $742. These numbers only account for rental properties that have 50 units or more.

Woody McLaughlin, chairman of Nashville-based Parthenon Properties Inc., serves on the apartment association’s statistics committee. He estimates the mayor’s property tax increase would likely raise the average rent by another $14 per month. Though he said the association is still weighing whether to take an official position on the mayor’s tax plan, he signaled some discontent. 

“It leads to several things,” McLaughlin said of Dean’s tax increase. “One is rental increases to make up for the additional costs. It will slow down the construction of new apartments. And it might, frankly, have a negative impact on new [apartment] companies coming to Nashville.” 

In the four-plus years since the subprime mortgage crisis in 2007, the ranks of renters in Nashville have increased by 17 percent. That marks a major reversal: From 2000 to 2007, the number of renters had decreased by 8 percent. Today, the occupancy rate of rental properties in the greater Nashville region is nearly 95 percent, an increase from 92.7 percent a year ago.

Accordingly, demand for rentals is high.

Real estate pros like John Gianikas describe a Nashville rental market that is humming. The co-manager of Gianikas Properties oversees an assortment of one- and two-bedroom apartments in the bustling neighborhoods of Green Hills, West End and Hillsboro Village. When his company lists an available unit, potential tenants aren’t difficult to find.

“The traffic’s very heavy right now,” Gianikas said. “We get a lot over the Internet, drive-bys and phone calls.”

Developers have responded, and a renaissance in Nashville apartment construction has transpired. More than 3,400 apartment units are in the process of being built in the greater Nashville area, with downtown Nashville and midtown among the hottest spots. Another 2,600 apartment units are planned, but construction has not commenced.

When all those units are complete, Gianikas expects Nashville’s rental occupancy rate to decline, meaning the rental market will “soften.” Like other apartment managers, Gianikas expects rents to rise if the property tax increase is implemented.

“You can get away with that if the market will let you,” Gianikas said of raising rent. “But, if it softens up, you won’t be able to.

“It’s coming on at a bad time,” Gianikas said of the property tax increase proposal, which he opposes. “You’ve got all these units coming on board, and then you’re going to increase property taxes. It could force that apartment recovery into a shorter period, and back to an apartment downturn.”

Historically, renters earn less than traditional homeowners, according to Loretta Owens, executive director of The Housing Fund, a nonprofit that assists first-time homebuyers. But she said more middle- and upper-income individuals are now deciding to rent.

To aid elderly, disabled and disabled veteran property owners, Dean’s proposed budget would increase Metro’s contribution to a property tax relief program available to these demographics.

“A renter doesn’t really have that option,” Owens said.  

With a property tax increase, Owens said there’s “balancing act” between providing government services that renters need and the “upward pressure” they would absorb from higher rent. She’ll also be watching
potential shifts in the rental market. 

She too believes Nashville could be at the “tipping point” on reversing the rental boom that followed the housing crisis. And the tax increase might accelerate things.    

“You get to a sort of mental equation of, ‘Am I willing to pay $1,000 in rent when I could have a mortgage for $800?’ ” Owens said. “When rents get pushed up a little but more, they may say, ‘OK, I feel better about the market now. I’ve sat on the sidelines long enough.’ ”    

16 Comments on this post:

By: JayBee56 on 5/20/12 at 11:15

Raising property taxes only helps government, never the people who are forced to pay it. It's too easy to raise taxes.

By: Ask01 on 5/21/12 at 3:10

I've always believed a significant portion of the population not classified as property owners supported increases in that arena because they assumed they would be unaffected.

Of course, such is untrue, because property owners who rent have to cover the increase in expenses somehow.

This story just confirms for renters, they too, will be affected by Mayor' Dean's inability to live within his means and the propensity of local government to overspend on pet projects then worry about covering the basics.

Accept it, Nashville residents, this may be refered to as a 'property tax' increase, but everyone will be on the hook to cover the bill due to increased costs for goods and services.

Just wait. When you see prices jump, since gas prices have dropped ar at least stabilized (until some oil CEO needs more money for alimony) the new scape goat locally could be Mayor Dean's property tax increase.

Voters missed the opportunity to dump Dean in the last election, now they must threaten the careers of the council members to rein in Mayor Dean's ambitions.

By: itsmyfirstday on 5/21/12 at 6:33

Of course the end user will end up paying this tax. Just like every time you raise taxes on oil...the oil company passes it on down the chain all the way to the gas pump. Same with property taxes...land lords will calculate there cost of a apartment/house including all taxes and adjust the rent to make a profit.

fd

By: Rasputin72 on 5/21/12 at 7:02

Can you imagine the mental expressions for perhaps 70% of the renters when they read this article? On second thought 50% of the renters do not read this newspaper.

By: Beernazi on 5/21/12 at 7:53

Just remember this the next time someone tries to say immigrants don't pay taxes.

By: JohnGalt on 5/21/12 at 9:39

Editor: Change "Likely" in the headline to "Will".

By: OHSMAN74 on 5/21/12 at 10:06

Renters will also suffer if police protection is cut due to insufficient tax revenues; there will be more car and apartment break-ins. Ditto if school teachers are cut, other services also. We all have to grow up and realize it costs money to pay for government services, but it's worth it to have a good place to live. We want leaders who have the backbone to give us the bad news that a tax increase is needed if it really is, and sometimes it really is. He has already made massive cuts. If Karl Dean says we need a tax increase, I believe there's no other choice.
By the way, Ask01, NO property tax dollars go the Arena; it is independently supported by hotel taxes and user revenues. Check your facts.

By: bobcnote on 5/21/12 at 11:08

First off, Rasputin72, you are a loser thinking that you are better than other folks less fortunate than you. at least from the impression I got from your comment.
Next, I have no issue with a tax increase "IF" it is for the right reason. But, I do NOT believe for a moment that this is anything other than the fact that Mayor Dean, spent 500 million dollors on a Convention Center that the taxpayers didnt want, when they couldnt even fill the less than 20 year old facility they already had. I would have much rathered he spend that money on a few snow plows and salters, so maybe a few lives would be spared in the winter. Just one taxpayers opinion!

By: Jughead on 5/21/12 at 11:19

OK--the economy is a disaster, many homeowners are struggling to survive, and Karl Marx Dean says "we need more"?

I am so sick of gov't feeding itself with my money. Feds, State, local, whatever--they all are the same. Keep screwing Joe Sixpack because...well...they can. Thanks, mayor dean.

By: RTungsten on 5/21/12 at 2:30

Apartment rents are going to take a healthy jump, just wait and see. Sadly, they are already on the high side thanks to the more strict lending policies and many folks unable to qualify for a home.

For me, I'm holding steady on my rent amounts. If this is only adding $300 per house, I'll just have a higher deduction at the end of the year. $300 is not worth losing a good renter over. Then again, I'm not as slummy as most of the usual NCP folks.

By: yucchhii on 5/21/12 at 2:44

You CAN'T tell me that the DISHONERABLE MAYOR KARL "DINK" doesn't know this is one of his criminal ways to keep the HOMELESS...HOMELESS, and to make MORE people...HOMELESS!! So my question is..."WHEN ARE YOU PEOPLE GOING TO OPEN YOUR EYES TO THE CRIMINALS THAT ARE RUINING THIS CITY AND THE COUNTRY? AFTER THE COUNTRY HAS BEEN RUN DOWN THE DRAIN???...(which it's halfway there NOW!!)

By: Beernazi on 5/21/12 at 3:13

And what would he have to gain by making people homeless? Go home and take your meds.

By: Rasputin72 on 5/21/12 at 6:37

BobCNote.......You are orrect I bundled too many people into a low IQ group. My apologies to you and a minority of other intelligent renters.

By: Ask01 on 5/21/12 at 6:49

OHSMAN74, please re-read and get YOUR facts straight.

When I used the term 'arena' I was making the point renters might support a property tax increase because they are not in that 'arena,' or 'category,' or 'classification' of being an actual owner of property, therefore do not directly receive a property tax bill.

I am so sorry if I confused you.

While the arena may be on paper supported by hotel taxes and user revenues, when pressed, city government will admit if those sources do not produce the required income, money will come out of the general fund which would include taxes generated by property tax collection.

Likewise the MCC. If the facility does not produce the promised endless flow of money, we taxpayers will have to pick up the slack to finance Mayor Dean's boondoggle.

Oh, by the way, if Mayor Dean had planned ahead, he surely would have realized the consequences when federal funding expired for the 50 police officers hired with that money. Mainly, now, as I understand, 200 officers may have to be unemployed to pay back the money he so foolishly accepted with strings attached.

Then we would only be short 50 instead of the 200 if we anti tax citizens prevail.

So, who is to blame? I believe our mayor because he knew this, and in fact, I believe planned on the result so he could try to scare citizens into supporting his extravagant schemes.

I will not fall for that.

I call on him to take a drastic pay cut along with every other senior member of Metro government and, in fact, begin laying off upper and middle management.

Mayor Dean knew the economy was in dire straits and, just in case you aren't aware, the job market has not bounced back anywhere close to what it was pre recession. (Don't let the lower unemployment rate fool you. All the numbers mean is more folks have used up their benefits or have lost hope and given up seeking employment.)

Question. If we are in such bad shape, why is the Mayor planning a big celebration for the 50th Anniversary of Metro? (I believe a wake would be more appropriate.) If Metro is hurting so, why all the corporate welfare? I'm sure if I was given a red pencil, I could slash a tremendous amount from the budget.

Have a nice evening while you mull all that over.

By: govskeptic on 5/22/12 at 8:35

Landlords have and always pass these tax expenses on to the renters,
which I think is about 40% of metros housing. Of course, that portion
never hits said renters in the face like a personal tax bill in the mail!
Today's new leases are most likely showing the proposed increase in the
rental rates. After several yrs of neglected school maintenance, while
spending huge amounts to upgrade all of Metros Administrative bldgs,
we are now getting Mayoral tours showing the neglected schools for
justification!

By: bobcnote on 5/22/12 at 8:49

And I return the apologies Rasputin72 , You are not a loser. :)