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Renters Pay Higher Property Taxes Than Home Owners According to Researchers
A look at the correlation between property taxes and housing affordability

By Mike Zitterich *UPDATED 09/08/22 By Editor Breeauna Sagdal*

Each year, beginning the first of August through the end of September, the Sioux Falls City Council holds public meetings to discuss the Annual tax revenues, expenses, future projects, programs, and projected plans of the city government. Part of that process includes the City Finance Officer seeking approval of the residents to take its allotted increase from the State Property Tax Assessments.

This allotted increase, in addition to the increases of the Sioux Falls School District budget, could mean higher property taxes for residents in the 2023 fiscal year. Property taxes, aside from impacting home-owners, also impact renters and access to housing affordability according to researchers.

In May of 2018, SmartAsset published a nation-wide study of the "Most and Least Severely Housing Cost-Burdened Cities in 2016". The study found that many people in 2016 were paying 30-50% of their income on housing, but the authors state, "it’s especially a problem for households that rent."

"Nationwide, renter households are more than twice as likely to be housing cost-burdened as owner households," the authors state.

While South Dakota has some of the highest property taxes in the nation, the cost of living is is offset by a small sales tax, and no income tax. In 2016, Sioux Falls, South Dakota ranked amongst the lowest cost-burdened cities.

However, according to the SmartAsset study, "no city is perfect." In 2016 4% of households across all income levels within Sioux Falls were still paying 50% or more of their incomes on housing costs, while 10% were spending between 30-50% of their income on housing. In the five years since then, property taxes in Sioux Falls have increased by another 14.2 million dollars. It's important to note that the max tax rate is set by the state legislature, but each city, and county have separate agreements and operating expenses that fluctuate budgets and property taxes.

Over the past five years, the City Council has steadily approved property-tax increases by $14.2 million dollars. $60,129,933 (2017); $62,523,959 (2018); 66,576,460 (2019); $70,288,580 (2020); and $74,349,770 (2021). Per the "2022 Request for Property Tax Dollars", the City Finance Officer has assessed, and confirmed that the City may be entitled to increase property-tax evaluations again, by another $2.2 million dollars ($78,572,716) for F.Y. 2023.

The 2.2 million dollar property tax increase is on par with the last five years, and in fact Mayor Paul Tenhaken's budget proposal for 2023 is below forecasted revenues for the year. With the costs of inflation, living costs for many are increasing, but some are feeling the squeeze more acutely. According to Derek Lobo of SVN Rock Advisors, these cost increases disproportionately impact renters.

Derek Lobo is the founder and CEO of SVN Rock Advisors Inc in Ontario Canada, and says that sometimes renters actually pay more property taxes than home-owners.

"It’s widely believed that only property owners pay property tax, but it’s actually not true, and in fact renters sometimes pay more property tax than those in single-family dwellings. They just pay it in their rent," Lobo said in an article for Real Estate News EXchange.

Lobo also points out that most renters do not think about property tax, because these taxes are “seemingly borne by the landlord." However, like Ontario, the city of Sioux Falls taxes homes that are
owner-occupied, and homes or multi-unit residencies that are renter-occupied, differently.

Renter occupied properties, be it single-family or multi-family such as apartment buildings, are taxed at higher rates because they are considered income properties for the owner. However, these costs get passed along to the renter in the form of rent, as do higher interest rates, increases in water, sewer, electric costs and more. In addition, renters share the same, or higher, tax burden for school districts, regardless of use.

According to a study recently published by Zillow, minorities often shoulder more of the cost burden, and are further behind on their rent than non-minorities, following the pandemic. According to a study recently published by the University of Chicago, the disparate inequality of housing costs for poor and minority households, are driving factors of homelessness, and access to housing.

According to the study's author,
Christopher Berry, housing inequality across the country is being driven by disproportionately higher property taxes in poorer neighborhoods. "Across the country, in city after city, homes in low-income neighborhoods are systematically over-assessed relative to their actual market prices, while those in rich areas are under-assessed. The net result is a transfer of billions of dollars of tax burdens from rich households to poor ones."

The total property value assessed in Sioux Falls,
according to the state's Department of Revenue is $16,800,000,000 billion dollars. The tax rate for Sioux Falls is currently set at 1.42% of assessed value, meaning the average home valued at $250,000 will pay about $3,550 dollars per year for owner-occupied properties, slightly over more than the national average.

Lloyd Companies, is a rental property company that owns approximately $212,113,800 dollars worth of assessed property value in Sioux Falls. Renters of Llyod property's, such as those living at Philip Ave Lofts, The Cascade and so on, pay an annual combined $3.02 million of the property tax burden to the city. Similarly, Ronning Rental Properties owns $45,521,500 million in assessed value, with their renters currently paying an estimated tax of $650,000 per year to the city.

The City Council will discuss the 2023 fiscal year's budget at the next meeting, September 13th.



*Editor's Note: We have retracted a former version of this article, and we apologize for the mistake made by our team. The current version accurately reflects the author's intended story and corrected math.

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--Mike Zitterich- Edited By Breeauna Sagdal

Post Date: 2022-09-08 08:06:04Last Update: 2022-09-08 13:15:48


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