City Opts for Tax Breaks Over Rent Control

by Chris on September 24, 2018

Minneapolis lawmakers are banking on a new voluntary tax-incentive program to cap ever-increasing rents in the city rather than implementing rent control measures.

Under a pilot program, the city is offering a reduction in property taxes to landlords who agree to keep rents affordable. The program incorporates a Minnesota tax statute providing low-income rent tax status — known as 4d — to participating landlords in Minneapolis who agree to keep 20 percent or more of their units at a “naturally occurring affordable level.” Those units must be occupied by tenants with household incomes at or below 60 percent of the medium income for the city. So far, landlords representing 207 units have agreed to the plan.

In addition to the tax breaks, the landlords receive financial assistance from the city aimed primarily at energy upgrades to lower overall operating costs, which could in turn produce more stable rents for lower income tenants.

Lawmakers are optimistic that the approach will preserve existing affordable housing and reduce ongoing costs while keeping landlord participation voluntary.

In contrast, other major cities continue to embrace more traditional rent control — mandatory caps on rent increases on all or most rental properties. From Los Angeles to Boston, rent control measures are extremely popular with tenants and touted by politicians seeking to attract renters who comprise roughly 40 percent of residents in these urban areas.

Unfortunately, rent control measures don’t appear to be panning out. Cities with strict controls are experiencing a decline in available inventory due to sales, conversions and landlords pulling the properties out of service. Rent control measures spook wary investors who otherwise could provide additional rental inventory. Low inventory drives rents higher, boxing out lower income renters — the very tenants the rent control measures are designed to protect.

But there are concerns in Minneapolis over how the city will make up for any reduction in tax revenues should the program succeed. Lawmakers say that will come from higher property taxes elsewhere, like when a property is sold.

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Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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