Landlords in Minneapolis can earn a break on their property taxes if they agree to keep some of their units affordable to people with lower incomes under a program approved Friday by the City Council.
The tax break aims to keep rents low at up to 300 private apartments that receive no government subsidy, known as “naturally occurring affordable housing.” Hailed by landlords and tenant advocates, it’s a first step as the City Council prepares to grapple with rising rents in Minneapolis that have put new strains on low-income residents.
“This is such a huge issue in my ward, and I’m really, really excited that we’ve added this to the long list of things that we are doing in the city of Minneapolis to fight back against displacement of renters that we’ve been seeing increase year by year,” Council President Lisa Bender said.
The program will tap into a little-used state tax status that grants owners of apartments a 40 percent property tax reduction on units that they keep affordable for people who earn 60 percent or less than the area median income. The status has been granted only for homes that are subsidized, but the city worked around that requirement by paying the filing fees for landlords and persuading the state to count that as a subsidy.
The state also extended the application deadline for Minneapolis landlords from March 31 to May 2, on condition that the city not submit applications for more than 300 units.
Mayor Jacob Frey announced the program more than a week ago.
So far, landlords are applying for the tax breaks and planning to commit to keep them affordable for 10 years, for about 100 units.
Council Member Lisa Goodman said landlords in her ward have been forced to raise rents to keep up with taxes.
“This is not a giveaway to developers,” Goodman said. “It’s an acknowledgment that small property owners — between two and a hundred units — have a problem keeping their units affordable just based on rising property taxes.”
For now, only buildings in Minneapolis with more than 10 units can apply for the property tax break, but smaller properties will qualify as the program expands.
For the purposes of the program, housing is considered “affordable” so long as renters spend less than 30 percent of their income on rent.
In 2018, 60 percent of the Twin Cities area median income for a household of four is $56,580. An affordable rent for a two-bedroom home for that family would be $1,273 per month, according to the Metropolitan Council.
Cecil Smith, a landlord who owns about 80 units in south Minneapolis, said he is applying for the tax break for the 74-unit building he owns. Speaking on behalf of the Multi Housing Association, Smith praised the City Council, the mayor and the state housing finance agency for working together on the incentive program.
“These are the kind of common-sense solutions that work. So yes, we’re delighted,” Smith said. “There are no silver bullet solutions for affordable housing. It’s a tool that is targeted at the problem. ”
Eric Hauge, who takes over next week as executive director of the tenant advocacy group Home Line, applauded the program.
“Generally, yeah, incentivizing maintaining affordable housing is one approach, and it’s needed,” Hauge said. “This is one part of a series of strategies that need to happen.”
Hauge said he would like the city to do more to help the very poor find and keep homes, and he emphasized the need for greater renter protections in Minneapolis.
Council Vice President Andrea Jenkins also praised the pilot program as “innovative and creative” but said any affordable housing work must try to help raise the income of people who can’t afford homes.
Council Member Phillipe Cunningham said he thought the program is “definitely addressing a need” but he reminded the council that the program should be geared toward combating racial inequality.
“Equity isn’t mentioned at all, and so I’m curious as to what the racial and geographic framework will be for this pilot,” Cunningham said.
Council Member Cam Gordon, who chairs the housing policy and development committee, thanked Cunningham for the question and said the program had to be rolled out quickly, so specifics about how it would address racial inequality hadn’t been thoroughly discussed.
“That’s something that I will commit to you to keep my eye on and be bird-dogging as we roll out a bigger program next year,” Gordon said.