A frequent topic I see lately is the issue of Affordable Housing. One of the biggest expenses of owning property, whether it’s your own home or a rental property, is property taxes. Home appreciation in San Antonio averaged about 4.3% last year, one of the highest rates in Texas. However, property taxes have escalated faster than this and have been for several years. This year alone assessed values are up over 9%, more than double the market appreciation rate. We all know that tax values have been traditionally lower than market values, however, in the past 5 years, the Appraisal District has vigorously pushed up tax valuations in an effort to catch up to market value. Knowledgeable real estate owners consistently protest their taxes, which will lower the rate of increase, but still the increases are mounting up.
So, we see that the increase in property taxes has far outpaced property value appreciation. Nothing particularly helpful came out of the recent Legislative Session. The tax districts are controlled by the cities, school districts, hospital districts, county and other agencies who live off these taxes. They are quite happy with the rapid escalation in the tax values because they make more money. Trying to convince them to curb the aggressiveness of the Appraisal District is trying to convince a bureaucrat to take a pay cut. Not happening. Just Vote. Thus, one of the impacts on Affordability is the government’s increasing tax bite.
This also affects commercial real estate. We see that apartment owners are being badly squeezed because a 20% or greater increase in your tax bill comes off your bottom line. Work force housing owners, that is Class B and Class C apartments, can’t raise their rents as fast as the tax man can raise their taxes. So their income and thus their values decline, and it becomes less attractive to invest in commercial property. Retail center owners, for example, lease their properties on a “triple net” basis, that is, they can pass through increases in taxes, insurance and common area maintenance to the tenants each year.
Well, most retail tenants are small business owners, like a fitness center, a beauty salon, a chiropractor, a dentist, a restaurant or a real estate company. Passing along tax increases, then means that they must pay higher occupancy costs in their monthly rent check. Well, that means that they make less money in their business because their overhead just went up to cover the taxes. Well, that makes it harder for the Landlord to raise rents because he may lose that tenant to a cheaper space. Or, the small business owner can’t afford to raise salaries or hire someone new because that money is going to pay the tax man instead. Well, then the employee doesn’t get the pay raise he/she deserves and then he/she has a problem paying the increase in rent at the apartment who is trying to raise the rent because the apartment owner’s tax bill went up and he is trying to pass that increase along to his tenants.
Taxes have consequences. And believe it or not, your city councilmen/women don’t really understand this. Then, they are piling on new sick leave expenses starting August 1 on this poor business owner. Don’t ask where our job growth, pay increases and affordability went. It went to the tax man.