Tax Rental Property to Prevent Rent Increases
Dis-incentivize above-average rent increases.
San Francisco (photo by authors)
What's the issue?
When rent increases are large or rapid, renters with low or fixed incomes can struggle to keep up. Unfortunately, landlords have little reason to keep rents low if a neighborhood becomes more popular. Landlords even have an incentive to stop renting to current residents when newcomers have higher and more stable incomes and few or no children. Increasing prices can push a current resident out, and nonpayment is grounds for eviction.
How does this tax help?
This policy would provide a disincentive for such rent increases. The amount of property tax paid by a landlord would be tied to the percent that the rent on a property increases from one year to the next. If the rent increased less than the average percent increase for the entire metropolitan area, then the landlord would pay no additional tax. If, for example, the rent increased 1-1.5 times more than the area average, then the policy would call for the landlord's property tax to increase by 10-15%. If the rent increased 1.5-2 times as fast as the area average, the property tax might increase by 20%. An increase greater than 2 times the area average might be met with a tax increase of greater than 20%. This policy would apply regardless of changes in occupancy. Cities might adjust the numbers to suit the local market, but the tax increase should always be large enough to overcome the benefit to landlords of hiking rents beyond what they need to earn a decent living.
How does this tax help?
Connecting this disincentive to property taxes would work in most cities, especially in states where rental income is not taxed. However, the local government would need to require landlords to report rental income on a yearly basis. This requirement would necessitate additional time and manpower to properly enforce.
Works best for neighborhoods in early-stage gentrification
What are some possible problems and how can we address them?
Landlords are likely to resist this policy, because it reduces their profits. Before implementing the tax, cities should determine who landlords are (Local? Absentee?) and how much they rely financially on rental income. The profile of landlords should help the city determine exactly how much to tax rent increases. The city should make sure that rents are allowed to increase enough to cover property expenses and to provide a living for landlords. Nevertheless, cities must be willing to step in when profit-seeking comes at the cost of vulnerable residents who are systematically deprived of opportunities to own their own property. In addition to causing displacement, excessive rent increases can create animosity in a neighborhood, depleting community trust and injuring all community members.