Minneapolis offers tax break in exchange for landlords capping rent

Dean Bona says he gets calls almost every week from investors eager to buy his apartment building in south Minneapolis. But Bona has committed to hold onto the property and keep the rents low for his tenants.

"I could make a bunch of money and get rid of it," he said in an interview. "I could grab the money and run, and then all the people that I have in my building will probably have to go find somewhere else to live."

Bona now has an additional incentive to continue being a landlord. His 12-unit building at 1916 Colfax Av. S. is one of the first enrolled in a new city program that offers a break on property taxes in exchange for agreeing not to raise rents. Nine landlords have signed up, promising to keep 207 units affordable for 10 years.

Mayor Jacob Frey has called the lack of affordable housing a "crisis" for the city, and city leaders have proposed a number of actions, including requiring affordable rental units in every new development and allowing multiunit projects citywide.

The City Council approved the tax-break program in April as a way of slowing the disappearance of "naturally occurring affordable housing." In 2017, 124 properties containing 4,000 units changed hands in Minneapolis, making up one third of all of units affordable to households earning 40 to 60 percent of the area median, according to a March 2018 report by the Minnesota Housing Partnership.

City officials say Minneapolis is losing these units at an "alarming rate." Andrea Brennan, director of housing policy and development for the city, said unsubsidized units make up the majority of affordable housing in Minneapolis.

The sale of these properties "creates pressure to increase rents, in turn putting stress on low- to moderate-income renters who tend to pay high proportions of their income on rent," the city's Office of Community Planning and Economic Development said in a report.

By signing up with the program, Bona estimated that he would save about $7,000 a year in property taxes. He said he could put that money into replacement windows on his building, which was built in 1910.

"I was getting taxed so high that the city ends up forcing you to charge a lot more for rent," Bona said. "Taxes have kept going higher, higher, higher to where it doesn't give us much opportunity to try to do improvements."

The maximum rents under the program in 2018 are $949 for a studio apartment, $1,017 for a one-bedroom apartment and $1,221 for a two-bedroom apartment.

Carolyn Szczepanski, director of communications and research at Minnesota Housing Partnership, said providing incentives to landlords is a "promising step forward," but it "is not a silver-bullet solution" to the lack of affordable housing in Minneapolis.

"It's significant that the city is taking real strides in trying to address this in a way that's leveraging public and private involvement," she said.

In his 2019 budget proposal, Frey requested $3.3 million to preserve this kind of housing.

When owners of low-rent housing decide to sell, some of that money could help "mission-driven" developers "with the goal of trying to limit those rent increases over time so that that housing doesn't become out of reach of low-income renters," Brennan said.

Minneapolis Budget Director Micah Intermill said in an e-mail that the tax-break program will not result in a loss of revenue for the city but rather will result in a slight reduction in the tax base that will be "offset by other properties' increases in value."

Dean Reder estimates he will save about $3,000 in property taxes by enrolling his 11-unit building at 2406 Golden Valley Road in the program.

"You are kind of chasing a circle because property taxes have gone up 30 percent in the last two years, and to cover that you almost have to increase rents," he said.

Ron Hendrickson, who owns a 14-unit building at 1900 Vincent Av. N. that was built in 1963, said the 40 percent reduction in property taxes would save him about $4,000 a year. He said the city will also help him with renovations to make the building energy-efficient and upgrade to water-saving plumbing fixtures.

"Part of it is savings," he said. "Part of it is for investments for the future so I can try to keep [rents] low for low-income individuals."

Hendrickson said some tenants still struggle to pay the full rent. "If I raise rents, these people can't always live there," he said.

Bona said his family has owned the property for more than a century, and he has tenants who have lived there for decades. "I want to try to keep it to be able to pass it down to my kids and see how it goes," he said.

A tenant at Bona's building for eight years, April Robarge pays $700 a month for a one-bedroom apartment, which is close to her school, Minneapolis Community and Technical College.

"It's more than an apartment to me," Robarge said. "It's my home. I don't want to move ever. I feel really safe here."

Mukhtar M. Ibrahim • 612-673-4689 Twitter: @mukhtaryare