By james art Half of Madison renters already spend at least a third of their income on rent, a level experts consider a burden on someone’s life.
But if a trio of referendums by the Madison school district and the city succeed this fall, that burden on tenants could worsen.
How much more tenants can pay if the questions pass will be determined by the real estate market and individual property owners. Officials insist the impact will be minimal, saying taxes are not the cause of the city’s housing crisis or high rents and that future cuts to city services and education pose the greater danger.
The true impact of a property tax increase is harder to calculate for renters than it is for homeowners. But the referendums are projected to add $100 in property taxes next year to the average apartment unit, assessed at $169,211. But by 2028, the Madison School District capital referendum and incremental levy increases from the current referendum could add hundreds of dollars in total new spending for the same unit by 2028.
Landlords set rents based on a variety of economic factors, including vacancy rates, tenant turnover and market competition. For new housing projects, interest rates, construction costs and lending also determine what the owner will pass on to the tenant.
“But we really don’t have a good way to measure or estimate (property tax impacts) because the rent bill that tenants get isn’t broken down by category, it’s just rent,” said Kurt Paulsen, a professor of urban planning at the university of Wisconsin-Madison.
“The estimates I’ve seen in the empirical literature vary all over the map, but I haven’t seen any studies suggesting that landlords can pass on 100% of tax increases to tenants.”
Referendums pose bigger questions for the city’s housing market than just individual rents. Cheaper housing, where low-income residents live, could be disproportionately affected by property tax increases, and new developments that already depend on thin margins could be blocked by the cost of the increases, noted Robert Proctor, director of Government Affairs of the South Central Wisconsin Association of Realtors. The association has a neutral position regarding referenda.
“The city and the school district are making tough decisions based on what they need to fund,” Proctor said. “But I also think it’s fair to point out that any time you increase the cost of housing, that ultimately gets passed on to renters and homeowners.”
Supply, demand
On the eve of the referendum vote, Madison has yet to emerge from a housing crisis unmatched for a city of its size in recent memory.
Between 2021 and now, rents in the city have jumped about 36 percent, with the average price of a one-bedroom apartment nearing $1,600, according to Apartment List, which tracks housing data.
Over the past month, Madison’s average rent growth of 0.4 percent was the fifth-highest in the United States, at a time when 80 of the 100 largest cities are seeing rent declines.
In 2021, about half of the city’s renters were housing cost-burdened, meaning they spent at least a third of their income on rent, according to a city housing report.
The origins of the housing crisis lie in the mismatch between housing supply and demand, but historical underdevelopment, single-family zoning protections, state laws, anemic regional transit, building height restrictions and other factors have exacerbated the problem.
City housing policy in recent years has seen zoning reforms to encourage higher density housing as well as subsidize and encourage affordable housing. New construction also bolsters the city’s finances by adding to the property tax rolls and paying development fees.
UW-Madison will receive state approval and funding for a 2,000-bed residence hall estimated at $293 million.
“There are all these different factors that new construction facilitates, and they’re finally waking up to it,” said Bruce Bosben, chairman of Apex Real Estate Holdings, which owns about 2,300 residential units in the city. “But now they are trying to kill it through excessive taxation. It’s like eating the goose that lays the eggs.”
Impact of passage
Like homeowners, the city’s referendum would have the least property tax impact of the three. By itself, the $22 million referendum would add roughly $85 in annual property taxes to the average apartment.
For city officials, the failure of the referendum would have a greater impact on tenants than any potential rent increase.
If voters vote against the referendum, the city intends to impose a flat special infrastructure fee of $6.35 on the monthly utility bill. The spending cuts the city would make if the referendum fails would also disproportionately affect renters and low-income residents, including cuts to bus service, library hours, building inspection, planning staff and nonprofits.
“It will affect renters much less than it would affect property owners,” Ald. MGR Govindarajan, who represents UW-Madison and the student-heavy neighborhoods in District 8, said of the property tax increases. “At the end of the day, it really doesn’t matter.”
Capital referenda and school district operational referenda have the greatest potential impact on housing costs.
If passed, the pair of referendums would add $117 in taxes to the average apartment unit, $509 by 2028, and only grow from there.
The School District’s $507 million capital referendum will pay for updates to 10 schools: constructing new buildings — some of which house more than one school — and renovating two existing elementary schools. The current referendum, which will cost $100 million over the first four years but will continue indefinitely, will pay for staff, academic programs and other initiatives to be determined.
“It’s vitally important whether a person has children in the district now or perhaps is considering it in the future,” Superintendent Joe Gothard said of the referendums. “But most of all, it’s important for (tenants) to consider what their education has meant to them and what it might mean to the city of Madison.”
School board President Nichelle Nichols and members Savion Castro and Ali Muldrow did not respond to requests for comment.
“The city and school district are making tough decisions based on what they need to fund. But I also think it’s fair to point out that any time you increase the cost of housing, that ends up being passed on to renters and homeowners.”
Robert Proctor, Director of Governmental Affairs for the South Central Wisconsin Association of Realtors