Disparity swells between slowing rent growth and increasing property tax assessments.
Dallas/Fort Worth Metro Area multifamily tax assessments see more double-digit increases while rent growth slows to an average 1.2% YoY increase in effective rents as multifamily supply floods the market.
DFW multifamily rent growth is slowing to a halt, and without question the number of apartment completions in DFW is a playing a major factor. According to the Dallas News, there are upwards of 37,000 units in development in North Texas – more than any other metro U.S. market. This on the heels of nearly 28,000 units that we delivered last year.
At the same time, appraisal districts for DFW’s four primary counties have ratcheted up their assessments on existing multifamily inventory yet again. Median YoY increases on multifamily property larger than 50 units ranged from 18% in Dallas County to more than 42% in Denton County for tax year 2018.
As rents trend down, property taxes trend up.
Declines in rental growth became evident in 2017. This means that multifamily tax assessments for 2018 (based on market value as of Jan 1) should reflect this slowing trend, but that’s not the case.
But if revenue isn’t improving, what’s at the source of this one-year growth in value? According to CBRE’s Second Half 2017 Cap Rate Study, multifamily cap rates for Class-A and Class-B apartments in DFW remained level from second half 2016. It’s difficult to accept double-digit growth in tax liability when income hasn’t improved (stagnant rental rates) and existing income isn’t being capitalized any differently (level cap rates).
Appraisal Districts will invariably make the case that decelerating rent growth will be reflected in next year’s assessed values. In the meantime, the burden falls to multifamily owners whose ability to pay their higher tax liability is based on the income they’re generating today.