Are Tax Bills Really Reducing for Multifamily?

Apartment valuations are coming down, but what does that mean for tax bills?

I was looking at a recent deal where the tax assessed value was higher than the actual value, so there was a case for reassessment. This made sense. The proforma assumed that the real estate taxes would adjust lower in lockstep with the adjustment in value, which is where views began to differ.

The taxes will likely see a downward shift for the deal in the near term, but the amount and sustainability of the drop are tougher to pin down over time.

As a general rule, taxing bodies cover budgets by allocating the tax liability to properties on a relative basis. The ratio of the total budgeted property tax revenue over the total valuation yields a tax / millage rate. Each property then pays its share of taxes by applying the millage rate to its assessed property value. This approach differs depending on local and state governance, ie commercial may pay a different rate than residential, but this is the general idea.

For real numbers, Charlotte’s market (where I live) collects county and city property taxes. North Carolina does not have state property taxes.

In June 2024, the City of Charlotte adopted a FY2025 property tax revenue budget of $614MM based on a total property valuation of $226B. Property taxes increased 10.9%, while property value increased 5.3%. The millage rate bumped up from 0.2604 to 0.2741, a 5.3% increase.

The prior year, the FY2024 property tax revenue budget was $553MM based on a total property valuation of $214B. Property taxes increased 3.6%, while property value increased 38.4%. The millage rate dropped from 0.3481 to 0.2604, a 25.2% decrease.

It is pretty useless to compare the millage rates for taxes, as they are typically adjusted to fit the tax budget. Values can increase from new construction and zoning changes, so value change is not necessarily an apples to apples comparison. A more practical method for reconciling tax exposure is comparing the property's change in value to the change in the total market value of existing stock. If total market value increased 50%, and the property value increased 55%, then the expectation is the property's taxes would rise, assuming the tax budget is equal to or greater than the prior year (when do tax budgets not creep up...in Charlotte's case, the city bumped taxes in 2024 by $0.013 per $100 of value).

As a whole, multifamily is seeing downward pressure on value across the board, so reduction in tax burden would likely follow for all apartments, reducing some of the gains from the initial reassessment. Also, assuming that multifamily value reductions are systemic, then the tax burden shifts more to homeowners. That is a political problem and ties in with housing affordability. Charlotte felt some of this after its county-wide reassessment in 2023, when lower- and middle-income neighborhoods saw a larger % tax increase when compared to higher earners and higher value property. On top of value reallocation, inflation has also put pressure on budgets to stay flatter, creating upward pressure on tax burden.

For property tax burden, keeping an eye on the political climate of local and state governments and watching for markets where regulations could shift the tax burden to multifamily / commercial property feels like an important area to start. With homeowners feeling the tax burden lately, multifamily properties looking to get relief on tax bills might be facing tougher times.