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Free Lunches for Renters

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With the proposed increase in property taxes for this year, I thought I would revisit the claim that renters are affected by property tax increases just like property owners. Now we all know that your landlord does not assign a number to property taxes in your rent. Property taxes are an element of the costs that presumable the property owners pass on. I tried to find a simple reference that would specifically document tax increases contained in rent here in Lawrence. I could find none; therefore, I had to back into the relationship.

I researched the average increase in rents for a two-bedroom apartment in Lawrence since 2002. Believe it or not, one source puts that increase at about 13%. The Bureau of Labor Statistics reports that the CPI-U has increased by about 18% in that period. My calculated property tax increase is about 40% during that period.

When one considers that there are expenses that property owners have to meet and that those expenses likely increase proportional to inflation then an inflation rate of 18% suggests that the property owner has not passed on all the increases in costs that they have experienced given that rents have only increase by 13%.

Now property taxes are not part of the CPI-U baseline so tax increases are not in that calculation or in the costs represented by it. So it would appear that for any portion of the property tax increases to have been passed on the other costs to the property owner would have had to increase at considerably below inflation. Since this is unlikely, it would therefore appear that little if any of the property tax increase hereabouts has been passed on. I am not arguing that it is zero but it certainly is not the full 40% increase levied on the owner occupied homes.

Let me hear it again. Renters experience tax increases just like property owners so the game is not rigged and the majority of the citizens of Lawrence (renters) do not get a free ride when new amenities are provided through property taxes. Right! It would appear that about 40% or our citizens pay for all the “goodies” purchased with property taxes. Talk about taxation without representation!

Sounds just like Merrill who keeps arguing that property owners do not pay for the civic services they receive. He has never responded to my queries as to a source for that assertion but given the above data it must be the biggest bunch of “hooey” every published in Lawrence.

It is time for our “law givers” to levy a renters tax linked to property taxes and increases thereto. I am not seeking to punish anyone or to raise revenue but to insure that renters experience the full effect of their demands for civic services. No more “free lunches”.

Let us debate all you “free lunchers”.

Comments

Agnostick 3 years, 5 months ago

Moderate, I think I might owe you an apology... for not clarifying, at least, and maybe more...

In reading your initial blog post, I didn't really see any sort of clear "identification," whether you were a "landlord" who owned rental property... or just an plain ol' average homeowner, like most folks. To me, you sounded more like the former, than the latter.

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George Lippencott 3 years, 5 months ago

I doubt landlords are in it for charity. The scenario I suggest is that when a substantial tax increase is passed maintenance slips. Once the costs can be passed on attention to maintenance resumes. That can be as early as the next lease or maybe two or three lease cycles.

Of course renters should vote.

Why are renters socialist. Thay have little control over the situation.

IMHO the costs of tax increases need to be better understood by renters so that they can consider both the costs and the projected gains when voting about new taxes. One way is a renters tax. Some other college towns have them. Another way is to look for other sources of revenue so that all progressiveness does not fall on the property owners.

I remember Prop 13 in California - wife voted for it. Perhaps now that Mr. Brownback is governor and the legislature remains Republican we could see something like that in our future. Ping on people can lead to p coming back.

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verity 3 years, 5 months ago

So what's the point? Landlords are in it for the sake of charity? Renters shouldn't be allowed to vote? Renters are socialists?

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parrotuya 3 years, 5 months ago

What? Is this right? A wacko conserva-hard railing for a tax increase? Are you a tax & spend conserva-hard now? Watch out, your membership in wacko-dumb might be revoked. Let' hear you say it: even more tax cuts for the wealthy!

DOWn, baby, DOWn!

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George Lippencott 3 years, 5 months ago

In the case of a commercial property, I have not a clue. It has a different reality. However, if Merrill is correct and we are overbuilt for commercial properties the owner will have similar difficulties making a profit.

See my other post above on other factors that influence how much gets passed on to who. In fact an owner can just skimp on maintenance and change the dynamic. The property goes to h**l but who cares. The city will have to deal with the blight and the tenant will have to deal with the leak. It is a complicated system. That said, the data presented on rental properties pretty much indicates that taxes are not quickly passed on in full to renters of residential property or that Lawrence will soon have a major blight problem.

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beatrice 3 years, 5 months ago

The thing that seems to be missing here is that renting a home to another person is a business, not just an ownership and property-tax issue. Would you say a business on Mass that rents its space is getting off without paying taxes since they are renting? If no, why not?

As a business, the landlord's expenses get passed on to renters. If the landlord can't turn a profit after paying the mortgage and various bills, including taxes, then he or she made a bad business decision. When housing is in demand, the landlords make more than enough to cover taxes.

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unite2revolt 3 years, 5 months ago

This strikes me as funny. Of course most renters get a free ride, its just one of the many reasons renting makes sense. I will not pay one red cent for the new library if it passes tonight, but I sure will use it. So I am voting yes. Here is the reason I won't be paying anything for it: I am on a month-to-month lease with my landlord, based on the terms of my previous one year lease. This legal document is such that as long as I keep my end of the deal my rent will remain the same from now until I die, move out, or the property changes hands.

The other reason it strikes me as funny is that many of the property owners that do pay for my free ride, don't even live here so they can't use the stuff they are buying. No new library for them.

I feel so sorry for all you folks that live in those over-priced Lawrence houses with those really high taxes you have to pay. You ought to just move out of Lawrence and live somewhere where property values are low and nobody wants to buy houses, that away you can save the money you would have paid to the city for services you don't use anyway. Maybe when enough of you move away, housing will become more affordable and us renters will start paying taxes to live in you old empty houses and enjoy all the services we voted for in the first place.

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Agnostick 3 years, 5 months ago

Is there government-instituted "rent control" in Lawrence, or not? Being a homeowner for some time now, I'm not really up on the whole tenant/landlord game.

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George Lippencott 3 years, 5 months ago

boltzmann (anonymous) replies…

OK, I am not sure what all you calculating is about but let us reprise my argument

Using your data the average increase in valuations has been almost 34% since 2002.

Using the total mil rate from my tax statements (those are consistent for all residential properties in Lawrence) the mil rate will have increased by about 19% with the new 2010 increases added (104 to about 124 if the library initiative passes).

I leave the precise calculations to you but it sure looks to me like an increase in property taxes in excess of 40%, my initial argument.

Just exactly what is our debate about? I am making a point about tax increases not arguing about the precise number. Our personaL calculated tax increase is 40% suggesting that it may be an increase less than the average.

The valuation increases are sometimes referred to as a stealth tax. The “law givers” do nothing and the tax coffers are engorged. The mil-rate increases are enacted by those “law givers” suggesting that the 34% increase was inadequate.

The combined increase is clearly well above inflation (in excess of 18% for the period) suggesting a healthy does of progressivism adding new items to the budget and expanding on old items.

The only point in the original blog is that taxes here are increasing faster than inflation so that an increase of rent below inflation as reflected in the data suggests that not all of the tax increases may have been passed on to the renters (so far).

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Agnostick 3 years, 5 months ago

So, renters are driven by "market conditions"... and property owners are driven by... something else?

Property owners are not driven by market forces? Immunity? Insulation?

"I defy you to identify anything I get as a property owner that a renter does not get."

Rent-generated income... property-generated revenue... "profit." Take your pick.

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somedude20 3 years, 5 months ago

I have been renting in one place for over 3 years and my rent went from $450 to $525 a month during that time so something is being passed. The nice thing about your prop tax is that you own (or will own when paid) your place (your choice) but I do not and will have nothing to show for my rent (my choice). i am paying $900 more a year now than I was back in 07' as are the other 5 ($4500 extra a year since 07') people in my building so again, something is getting passed

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George Lippencott 3 years, 5 months ago

Bea and Company. Below is my take on what renters actually pay. The following is from a comment (not a blog) I made back in early summer (sure a lot of comments over the dam since then). Of course they pay a portion of the costs of the taxes that the landlord pays. As noted by "Did I Say That" and suggested by the following analysis what they pay is a lot less than many of you seem to think.

The above blog deals with how fast increases in property taxes are passed on to renters (if at all). It would appear that here in Lawrence (the data I used) that process has been slow supporting the point that renters (an apparent majority in this town) are protected from votes to increase property taxes - particularly if they are only here for a few years.

"". jafs (anonymous) replies… Renters also pay taxes - do you think landlords don't charge enough rent to cover that expense?"

Another myth. Renters pay taxes as an element of their rent. Rents are not driven by taxes but by market conditions. Despite “merrills” best advice we are overbuilt so rents are very competitive.

I did an analysis comparing a duplex and an owner occupied home of comparable value. If I did it right the taxes were about the same. In the owner occupied property, that one family paid the full tax bill. In the rental duplex three families pay the same tax (if passed on at all). Remember, the rental property owner writes off the taxes in full and we pay them through a need for higher taxes to cover the tax expenditure. The renter cannot write them off because (if they are paid) they are not so identified in their rent.

There is also a time delay. The rental property owner to the extent he/she passes on the tax cannot do so until the next lease cycle. The renters can demand things and at best the costs of what they demand will be delayed (to the extent they see any increase) until the next lease.

Remember, property taxes are the bill for city services. Yes, they are assessed on the property value and are therefore proportional to perceived wealth, but in Lawrence that just serves to aggravate the differences. I defy you to identify anything I get as a property owner that a renter does not get. At best, they pay about a third of what the property owner pays. Not fair or just and more importantly conducive to runaway “government” services and intrusion.”

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Agnostick 3 years, 5 months ago

I can't help but see this as a lot of whining by people who don't know how to manage their investments. Every investment comes with its inherent risks attached.

Yeah, there are probably plenty of students who go home every summer to Overland Park to lay around by mommy and daddy's backyard swimming pool. Ho-hum. I'm sure there are also plenty of students that live in Lawrence all 12 months, working wherever they can to make a little money to pay for tuition... books... expenses... rent.

If you're not happy with the effect those wonderful free-market forces are having on your rents, then maybe it's time to find another market.

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Adrienne Sanders 3 years, 5 months ago

Does anyone think it matters that property owners OWN the property, whereas renters, who are certainly paying property tax as a portion of their rent, don't actually get to keep, or modify, or do anything else with the property that they're using?

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OreadHawk 3 years, 5 months ago

I agree that everyone should pay an even share for using civic goodies regardless of income, size of house, type of car. I say a Flat tax of 3k for property tax per individual or may be 5 k to live, play and drive in Lawrence. We also need to come up with a fair income tax solution like 10k regardless of your income. This way if you don't pay , U borrow from the government to pay your dues. If U don't have enough $ by retirement U don't get any services . When we have all this real Cash , we can then decide to build new library, parks, jails, homeless shelter, streets. We should off course let the Landlords off the hook and get the renters directly for their dues. Not to forget with the flat tax of 10k the landlords wont be able to deduct the property tax as write offs. No more write offs!. No more free Lunch! pay to play system is needed.

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oneeye_wilbur 3 years, 5 months ago

Thank you voters for passing the library bond issue. RENTs go up.

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workinghard 3 years, 5 months ago

The rental market has been tough since the city is allowing overbuilding of rentals. I have not raised my rent since 9/11, in fact I lowered it. Meanwhile the taxes, insurance, and cost of repairs have gone way up. My renters are indeed getting a free lunch, but I realize they are hurting just like the rest of us. I will be voting no on the library.

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Moderateguy 3 years, 5 months ago

Good points George. Another component to this is the transient nature of the student population. Someone entering their last year at KU signs a lease fixing their costs for the year. While they are here, they show up at the poles. A simple question is asked. "What would you say to a bus service / new library / outdoor recreation area?" They say, "sounds great to me, I like those things." Then they graduate and move away and never pay another dime. I don't have a solution to this problem, but it does bother me that people can vote to increase taxes for others when they can get off scott free.

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beatrice 3 years, 5 months ago

Just as losses businesses experience from shoplifting are passed on to consumers through higher prices, landlords pass expenses of doing business onto renters. This includes taxes. There is no such thing as a free lunch. The taxes might not be directly paid, but they are paid. End of discussion.

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Benjamin Roberts 3 years, 5 months ago

You have a good topic and make some valid points here, George. Renters do pay property tax. However there are three reasons it does not have a seeming effect upon them.

First, there is no itemization of rent. It would be interesting if landlords were to include that as a footnote in the rent statement. "Thank-you for your rent payment of $595 including your portion of property taxes in the amount of $53.00."

Second, many renters are accustomed to a one-size-fits-all payment plan. This is the way they purchase cell phone plans, cable television, Internet, automobile maintenance plans, etc. Many people today are unaware of the actual costs of many products, services, and taxes.

Third, most renters would not experience the same financial effect as homeowners, even if property tax increases were passed directly to them. For example, Aberdeen Apartments (2300 Wakarusa) paid $109,011 in property taxes for 2009. They have 169 units. Simple math (not accounting for sq. ft. or bedrooms) means that each apartment renter's share is $645/yr, or $53.75 per month. Compare that to a ($163K) homeowner's tax bill of $2200/yr, or $183/mo. Or, compare to a nice home just across the road from Aberdeen, say on Riviera Court where taxes are as much as $5949/yr, or $495/mo - just a C-Note shy of their neighbor's rent. Regardless of the rate of increase, the dollar effect will be much greater on homeowners.

It would be prudent for property owners (landlords) to declare the cost of property tax to each renter. A notification of the actual rent increase that would be created if an issue passes would enlighten some renters.

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George Lippencott 3 years, 5 months ago

I could not find average property values fori 2002 but coulod for 2000. The LJW did a story. From 2000 to 2007 the aVERAGE PROPERTY TAX INCREASEd BY 61 % OR 7.5% PER YEAR. Using that 7.5 percent/year figuree the tax increase from 2002 to 2010 comes out = hold your breath 60%. I guess I am fortunate or the average hiides some fits and starts which it does. However my 40% number is not suspect

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DanR 3 years, 5 months ago

You need to revisit your math, because it certainly isn't supporting your argument for the need for a renter tax levy. Apples and Oranges.

A 40% increase in property tax is likely much less than a 13% increase in rent. Compare a 2002 property renting at $600/month with a $1000 tax to that same property in 2010 with a $1400 tax and a 13% increase in rent (which would be $678/month). It would seem that the tax increase IS indeed being passed on to the renter.

tax: 1.4 x $1000 = $1400 (annually) -- $400 increase or $33/mo. rent: 1.13 x $600 x 12 (months) -- $936 increase or $78/mo.

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boltzmann 3 years, 5 months ago

I'm not sure what your situation is, but my property taxes have only gone up about 5% over the past 5 years - I need to check my records more closely to find 2002. I think that to make a better argument, you need to look at average changes for all numbers you use. I'm not sure that comparing average rent increases with your specific property tax rise is a relevant comparison, as it is comparing average statistics with anecdotal statistics. I'm not saying your comparison is incorrect, but I don't think that it is convincing, in that it doesn't seem to agree with my (albeit also anecdotal) experience.

One does have to also remember that property owners get a tax deduction for paying property taxes that renters do not get on rent that they pay, so that any rise in property taxes is buffered somewhat by a reduction in income taxes.

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