Portland voters clearly support rent control, but are homeowners in the city ready to open their wallets to pay for it?

With the potential for a 17% increase in property taxes in Portland, and with a drop of over 30% in the value of apartment buildings in the city this past year, homeowners in Portland are on tap to shoulder the increased tax burden.

Property taxes, assessed on the value of real estate, are the lifeblood of the city and school budgets in Portland. Under rent control, apartment buildings are worth less. Landlords can’t charge market rent and so buyers aren’t willing to pay as much for those apartment buildings.

As the market has digested rent control in Portland, prices for apartment buildings have plummeted. Last year, the median price for an apartment building was $125,000 per unit. The year before, that number was $185,000 per unit. That is a 32% drop in value. It hasn’t sunk in yet, but city landlords are still being taxed at that significantly higher value. How long will that last?

If this continues, landlords will realize they are being taxed at rates far above their actual value. Whether they challenge the City Assessor’s office individually or as a group, there will be a massive call for a revaluation by the landlord community. Even if there isn’t a continued drop in value, apartment buildings do not carry the weight, tax-wise, that they would in a market without rent control.

Caught holding the bag on this will be the single-family homeowner of Portland. Their house, which has continued to rise in value over the years, will now shoulder even more of the tax burden. Property taxes are all about relative values; residential homes will now account for a bigger piece of the pie and will be taxed as such. Roughly put, Portland single-family residences account for $5 billion in taxable property and multi-family apartment buildings account for $5 billion. If apartment buildings’ assessed values drop over a billion dollars, where will those tax dollars come from? What services will be cut?

A recent budget proposed by the City of Portland indicated that property taxes are potentially going to be raised 17%, with the city side increasing 9.5% and the school side at 7.5%. Adding fuel to the fire, the most recent version of rent control approved by the voters no longer allows landlords to pass along tax increases to tenants by way of a rent increase. This only crushes apartment buildings more, hurting their taxable value.

As a landlord, I didn’t celebrate when rent control passed. I know people are struggling to make ends meet and, in a city heavy on renters, it’s no surprise rent control has done well at the ballot box – a place where the evaluation of complex policy should be avoided. The reason I write this, though, is to point out that there are negative consequences of rent control that are going to hurt more than just landlords. As time passes, these will be felt by all members of the community, including tenants, whether they are aware of it or not.

Good policy is about what’s best for the city and all its residents in the long term. Bottom line, rent control does not incentivize new housing and has endless unintended consequences, increased taxes on homeowners being one of them. As a prominent Swedish economist once said: “rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.”

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