City tax `break' will hurt renters

2 February 2001

As they campaign for your vote this year, do you think Boston's politicians will mention the new law just passed by the City Council and signed by Mayor Tom Menino - the law that next year boosts the cost of renting in Boston by about $14 million a year?

Oops.

Actually, they will talk about it - but not in those terms. Instead, they'll tell you they cut property taxes for the average homeowner by about $260 a year. It sounds great, until one realizes that in the zero-sum game of local property taxes, one person's tax break comes only at the price of another person's tax increase.

And in this case, it's mostly renters who will pay for the taxes that homeowners will save.

Here's why.

Right now, if you own and live in your own home, the city of Boston will already exempt about $50,000 of your property's value from taxation. That works out to an annual tax break of $525.

This year the City Council and the mayor pushed through an increase in the exemption, bringing it up to almost $75,000.

That change will end up boosting a homeowner's annual tax savings to $785. The total cost of that tax break will be about $14 million.

But a tax BREAK is not the same as a tax CUT. Indeed, Boston has no intention of collecting less in taxes than it does now. Instead, it will just get them from someone else.

For tax collection purposes, all residential properties (both rental and owned) are lumped together into the same pool. If taxes drop on some residential properties (such as those that are owner- occupied) then taxes on other residential properties (rentals, that is) go up. (Commercial and industrial properties, which are in a different pool, are unaffected by this.)

So when the new tax break goes into effect next year, landlords (and, because of the peculiarities of the law, some homeowners in more expensive houses) can expect to see their taxes go up a total of $14 million - the amount needed to offset the tax break just given to homeowners.

Of course, in a tight rental market where demand is high, the landlords won't be the ones absorbing the new taxes. Instead, they will turn around and pass on their new expenses to their tenants in the form of higher rents.

Is the new tax break to homeowners a sensible policy?

I own a home, so my first reaction, of course, is yes.

But for several years now, the rapidly escalating cost of housing has been a front-burner topic for local politicians. Rising costs, they argue, are making Boston unaffordable, driving out working class families.

And who is bearing the brunt of these newest increases?

Homeowners generally don't see housing costs rise because they own their homes, paying a fixed amount each month for their mortgages. Renters, however, are subject to annual rent increases, increases that in some neighborhoods have been consistently in the double digits.

The city's apparent solution? Let's make their costs higher!

It's understandable why the City Council and the mayor pushed for the increase in the homeowner's exemption. Tax cuts are popular. Republicans have known this for years. Even in Boston, a Democratic city run by Democratic officials, tax cuts resonate with voters.

Moreover, even though there are more renters in Boston than homeowners, politicians tend to cater to homeowners because they are generally thought to be more likely to actually get out and vote.

In addition, the tax increase to tenants, coming in the form of higher rents, is largely hidden. Tenants tend to blame their landlords instead of the city's tax policy.

So it may be bad policy, but it makes for great politics.

But it is bad policy nevertheless. After much effort, Boston has cobbled together plans for a one-time expenditure of $25 million to help build affordable housing - a noble aim.

Yet this newest tax increase on tenants will - in just two years - more than offset the affordable housing money the city is hoping to spend.

And regrettably, the tenant tax increase is symptomatic of a larger problem.

Housing is expensive in Boston because there is a high demand for it. Solving the problem means boosting supply, particularly by increasing the availability of lower-cost housing. But that's hard to do.

City zoning codes and life-safety regulations needlessly increase housing costs. Obtaining permits for new housing developments is complex and expensive. Developers and political scientists alike say these dramatically raise the price of urban housing. The latest tax hike adds yet another layer of cost.

Think of this as the Law of Unintended Consequences: Legislation passed even with the best of intentions often has perverse effects that end up creating more problems than it solves. Affordable housing may be a front-burner issue, but this time around, it's tenants who got burned.