Apartment owners brace for whopping tax hikes; tenants should brace for higher rent

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by Doug Miller / KHOU 11 News

khou.com

Posted on April 1, 2014 at 9:30 PM

Updated Tuesday, Apr 1 at 9:40 PM

HOUSTON -- Showing off an apartment at a complex on Yale Street in Houston’s Heights, Brittiani Brady bragged about the amenities and gestured toward the granite counter tops and new appliances decorating the kitchen

“All of our kitchens have a lot of storage space, a lot of cabinet space, a lot of pantry space, which is a really good thing,” she said.

A billiard table sits in a common room adjacent to the lobby where tenants jack themselves up on free coffee and tea. The gymnasium down the hall is equipped with exercise machines rivaling a new YMCA.

“One bedroom, one bath,” Brady said. “The rates for it are starting at about $1580.”

That’s typical for quality apartments in that area. But don’t be surprised if that changes dramatically in the next couple of years.

Apartment dwellers don’t pay property taxes on their homesteads in Houston, so they may feel somewhat insulated from the annual sticker shock of rising appraisals. But their landlords are getting slapped with some whopping hikes in their appraised values, which will translate into dramatically higher property tax bills. And no one should be surprised if or when landlords pass the costs along to renters.

Houston’s booming economy inevitably raises property values and consequently property taxes. Homeowners will see an average 16 percent hike in their appraised values for 2014, according to the Harris County Appraisal District (HCAD). Office building values are expected to rise by an average of 18 percent, warehouses by 14%

But apartment complex valuations are expected to rise a stunning 22%.

“Most of that is coming from some of the newer construction and the high rise apartments,” said Jack Barnett, a spokesman for the appraisal district. “But we are seeing increases pretty much through all sectors of the apartments.”

The irony is that rising property tax bills this year may have a greater impact on renters than on homeowners. Texas law caps hikes in homeowners’ property tax bills at 10% a year, but there’s no such cap for apartment complexes. If landlords simply pass the cost along to their tenants, apartment dwellers could end up paying double digit rent hikes.

Of course, rental rates are affected by a host of factors, the most important of which is the simple rule of supply and demand. Right now, demand is high and developers are scrambling to increase the supply of available apartments.

“We have to appraise property by law at its January 1st market value,” Barnett said. “What is driving the increase in property values for apartments, as well as the increase in rents, is the availability of apartments. You do have more people moving into town.”

The good news is that Houston’s economic boom has created a white hot housing market. The bad news for apartment dwellers is that rents are almost certain to rise.

“I think it’s time to buy,” said Justin Walker, who rents an apartment with a roommate in the Montrose area. “I mean, Houston’s exploding. So locking down some property right now wouldn’t be a bad idea.”

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