Here is Where Multifamily is Facing the Biggest Tax Increases

Multifamily owners and operators are facing a growing level of property taxes and, in many metros, the rates of increase make inflation look like nothing, according to a Trepp report.

Rising interest rates, interest cap costs, and the often-brutal reality of refinancing, even in multifamily, which was supposed to be one of the “safe” property types because people had to live somewhere, has been an industry preoccupation.

But as inflation has slowed and people have wondered when the Federal Reserve might stop raising rates, another issue has appeared. Even when it subsides, regular expenses will still likely strain net operating income of properties. Insurance prices that have risen due to climate change-driven natural disasters may be up there for good. And those expenses will matter to lenders who want to be sure that debt service coverage ratios are in a safe range.

Those in the industry have always had to manage property tax growth as part of regular expenses. But the rate at which they’re growing, at least in multifamily as Trepp has documented, in many metros is far higher than inflation was even at its recent peak.

Between 2021 and 2022, the top five multifamily markets with the highest year-over-year property tax increases were Richmond, VA (15.3%); Orlando-Kissimmee-Sanford, FL (12.2%); Salt Lake City, UT (11.9%); Virginia Beach-Norfolk-Newport News, VA-NC (10.9%); and Chicago-Naperville-Elgin, IL-IN-WI (9.9).

Of the top 15, the lowest increase was New York-Newark-Jersey City, NY-NJ-PA, and that was still 6.1%.

Some of the increases were a matter of population shifts and rising property values. Richmond is an example. “Residents have been relocating due to the increased cost of living in Northern Virginia as well as the need to commute by train between Richmond and the D.C area,” Trepp wrote. “These contributors led to the 36% jump in residents moving from Northern Virginia to the Richmond area in 2020 and 2021, compared to 2012-2019.”

But without enough housing, demand drove up property values, which meant the assessed values and taxes due also rose. As the Richmond Times-Dispatch explained: “The assessments, per state law, are intended to match the projected market rate for a given property. In the city of Richmond, property owners pay a rate of $1.20 per $100 of assessed value. With a 13% increase, a property owner with a single-family home assessed for $300,000 this year would pay about $468 more when their tax bill is due next year.”

In some cases, there were multiple factors. Salt Lake City saw a significant rise in demand for apartments, driving up prices. Overall CRE values grew at 11.8%. And the city council approved a 4.9% property tax increase, the first since 2014.