Like so many landlords these days, Bryant Meltzer turns to Craigslist when he needs to rent out one of his houses or duplexes. He tapped the website just last week to advertise a two-bedroom home on Elvira Avenue in Inglewood.
With nearly two-dozen rental properties in East Nashville, he’s found a niche: catering to the horde of musicians who have chosen to make the burgeoning neighborhoods on the east side of the Cumberland River home.
“That’s my target audience,” Meltzer said.
The business model seems to work. His units are completely filled –– excluding, of course, that one he just posted on the Internet. He’s looking for $850.
But this seven-year veteran of the rental business is among the scores of landlords and property owners surveying Mayor Karl Dean’s proposed property tax hike, forecasting what the overall 13 percent increase might mean for them and their customers. The answer, it seems, is simple and probably not surprising: Costs will eventually be passed down to renters.
“Unfortunately, I’ll have to increase rent to the tenants,” Meltzer said of the proposed tax hike, estimating he would likely mark his house rentals up by an extra $50 per month. “And that, to me, is awful. That makes a huge difference is somebody’s lifestyle. It’s really sad.”
Since Dean’s May 1 announcement that he plans to pursue Davidson County’s first property tax hike since 2005, the focus has mostly been on how it will affect individual homeowners. The proposal, a 53-cent increase to the combined Urban and General Services rate, would on average increase individual property tax payments annually by $192, or $16 per month.
That also means a likely rent hike for the 44 percent of housing occupied by renters in Davidson County.
That higher taxes on landlords would trickle down as higher costs for renters sounds like standard economics. But the proposal comes at a time in Nashville when more than four in 10 renters are already spending 35 percent or more of their monthly income on rent, according to the census bureau.
Most financial experts advise people to spend no more than a third of their income on housing. If property taxes go up, critics fear a new burden on renters.
“It’s a misnomer that it only affects property owners,” said Metro Councilman Josh Stites, who has criticized the mayor’s tax hike proposal.
“These people who live in apartments are going to be affected more, because these apartment owners — especially the big ones that are owned by real estate investment trusts — they’re not going to be just eating those costs,” he said. “They’re going to be passing them right along.”
The mayor’s property tax hike — which would pump an additional $100 million of revenue into Metro’s coffers — cleared a procedural first-reading vote in the council last week. The tax levy adjustment now moves on to a more crucial second of three votes in June, when it will be the subject of greater scrutiny and debate.
Dean has said the tax hike is necessary to avoid draconian cuts in areas such as police personnel, teachers and firefighters. Moreover, after consecutive years of a stagnant government growth, the mayor maintains that now is the time to address long-neglected infrastructure projects and increase the salaries of starting teachers.
At-large Councilman Jerry Maynard, who supports Dean’s tax plan, acknowledged that many landlords would likely increase rent. But he suggested lower-income families, who typically rent homes instead of own, would be disproportionately neglected when it comes to key government services if the tax hike doesn’t pass.
“It’s the middle-class neighborhoods, the lower-income neighborhoods, the poor neighborhoods where you need a strong police force and strong schools with resources,” Maynard said. “Because if you don’t, those neighborhoods will suffer more than the wealthier neighborhoods, who won’t be impacted by a lack of police and first-responders.”
Davidson County’s property tax rate, which under Dean’s plan would rise to $4.66 in the Urban Services District, is applied to the assessed values of properties to calculate tax payments. For residential single-family homes, the assessed value is 25 percent of the appraised dollar figure. But for properties that include two or more rental units, which thus qualify as commercial property, the
assessed value is 40 percent.
“It nearly doubles your taxes,” Davidson County Property Assessor George Rooker said of the commercial property classification.
Rent in the Nashville has already been on the rise.
The average monthly rent in Nashville and surrounding counties for the first quarter is $790, according to the Greater Nashville Apartment Association, up from $776 a year ago. Prior to that bump, the average rent had been $742. These numbers only account for rental properties that have 50 units or more.
Woody McLaughlin, chairman of Nashville-based Parthenon Properties Inc., serves on the apartment association’s statistics committee. He estimates the mayor’s property tax increase would likely raise the average rent by another $14 per month. Though he said the association is still weighing whether to take an official position on the mayor’s tax plan, he signaled some discontent.
“It leads to several things,” McLaughlin said of Dean’s tax increase. “One is rental increases to make up for the additional costs. It will slow down the construction of new apartments. And it might, frankly, have a negative impact on new [apartment] companies coming to Nashville.”
In the four-plus years since the subprime mortgage crisis in 2007, the ranks of renters in Nashville have increased by 17 percent. That marks a major reversal: From 2000 to 2007, the number of renters had decreased by 8 percent. Today, the occupancy rate of rental properties in the greater Nashville region is nearly 95 percent, an increase from 92.7 percent a year ago.
Accordingly, demand for rentals is high.
Real estate pros like John Gianikas describe a Nashville rental market that is humming. The co-manager of Gianikas Properties oversees an assortment of one- and two-bedroom apartments in the bustling neighborhoods of Green Hills, West End and Hillsboro Village. When his company lists an available unit, potential tenants aren’t difficult to find.
“The traffic’s very heavy right now,” Gianikas said. “We get a lot over the Internet, drive-bys and phone calls.”
Developers have responded, and a renaissance in Nashville apartment construction has transpired. More than 3,400 apartment units are in the process of being built in the greater Nashville area, with downtown Nashville and midtown among the hottest spots. Another 2,600 apartment units are planned, but construction has not commenced.
When all those units are complete, Gianikas expects Nashville’s rental occupancy rate to decline, meaning the rental market will “soften.” Like other apartment managers, Gianikas expects rents to rise if the property tax increase is implemented.
“You can get away with that if the market will let you,” Gianikas said of raising rent. “But, if it softens up, you won’t be able to.
“It’s coming on at a bad time,” Gianikas said of the property tax increase proposal, which he opposes. “You’ve got all these units coming on board, and then you’re going to increase property taxes. It could force that apartment recovery into a shorter period, and back to an apartment downturn.”
Historically, renters earn less than traditional homeowners, according to Loretta Owens, executive director of The Housing Fund, a nonprofit that assists first-time homebuyers. But she said more middle- and upper-income individuals are now deciding to rent.
To aid elderly, disabled and disabled veteran property owners, Dean’s proposed budget would increase Metro’s contribution to a property tax relief program available to these demographics.
“A renter doesn’t really have that option,” Owens said.
With a property tax increase, Owens said there’s “balancing act” between providing government services that renters need and the “upward pressure” they would absorb from higher rent. She’ll also be watching
potential shifts in the rental market.
She too believes Nashville could be at the “tipping point” on reversing the rental boom that followed the housing crisis. And the tax increase might accelerate things.
“You get to a sort of mental equation of, ‘Am I willing to pay $1,000 in rent when I could have a mortgage for $800?’ ” Owens said. “When rents get pushed up a little but more, they may say, ‘OK, I feel better about the market now. I’ve sat on the sidelines long enough.’ ”