The Potluck

League of Minnesota Cities pitches new tax on corporate landlords

By: - February 16, 2022 12:20 pm

A HavenBrook Home pictured in a lawsuit filed by Minnesota Attorney General Keith Ellison on Feb. 10, 2022.

In an effort to discourage large investors from snapping up homes and turning them into rental properties, the League of Minnesota Cities is proposing a new state tax on corporations purchasing owner-occupied single family homes.

“We’re trying to preserve single family homeownership opportunities for individuals,” said Daniel Lightfoot, a lobbyist with the League of Minnesota Cities.

The proposal is tucked into a bill introduced this week (H.F. 2880) dubbed the “Comprehensive Housing Spectrum Bill,” which includes historic funding for affordable housing development and new tax revenue to help pay for it.

Under the bill, which is being carried by Rep. Alice Hausman, DFL-Falcon Heights, any corporate entity that owns four or more rental properties would be taxed at a yet-to-be-determined percentage of the sale price of owner-occupied single-family homes, duplexes and triplexes. The tax would not be imposed on corporate purchases of existing rental properties.

The proliferation of corporate landlords since the subprime mortgage crisis in 2007 has troubled local leaders and housing advocates, who say out-of-state investors are edging out aspiring homeowners with all-cash offers only to charge high rents while providing minimal maintenance.

A recent study by the Federal Reserve Bank of Minneapolis found that the share of investor-owned properties in the Twin Cities metro has more than doubled over the past 15 years, from 1.8% to 4.1%.

The share of investor-owned properties is much higher in low-income neighborhoods, with investors owning a fifth or more of properties in parts of north Minneapolis, Fridley and Hopkins. In one census tract in northeast Minneapolis where the poverty rate is around 40%, nearly one-third of properties are owned by investors.

The authors of the study — Tu-Uyen Tran, Kim Eng Ky and Libby Starling — report most of the growth has been among large investors that own 50 or more properties. The trend took off following the collapse of the housing market in 2007 and then accelerated in 2012 when the federal government began offering incentives to national investors to buy distressed properties to shore up the housing market.

Attorney General Keith Ellison recently filed suit against one of the state’s largest corporate landlords, HavenBrook Homes, for failing to maintain its properties and remedy lead hazards. The lawsuit also alleges HavenBrook tried to evict tenants in violation of the state’s eviction moratorium.

“Systematically under-resourcing the upkeep of their properties and leaving many tenants in homes that are uninhabitable is a deliberate strategy to maximize and extract profit from Minnesota families,” Ellison said during a Thursday news conference.

A spokesperson for HavenBrook Homes said the company is reviewing the lawsuit but said it is “committed to providing the highest-quality rental housing experience possible.”

The tax on corporate purchases proposed by the League of Minnesota Cities would increase with the sale price of the home.

That seems to run counter to the stated goals of the bill’s proponents to crack down on corporations targeting low-income communities. A progressive tax rate would discourage purchases in affluent cities like Wayzata or Eden Prairie more than it would in low-income communities like north Minneapolis, where investors own a higher share of properties.

Lightfoot, the League of Minnesota Cities lobbyist, said the policy is modeled on a law in Washington state, and that details could change.

“The goal is to target the corporate purchase of single-family, owner-occupied homes. That said, we’re going to continue to have conversations about what the specificity should be.”

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Max Nesterak
Max Nesterak

Max Nesterak is the deputy editor of the Reformer and reports on labor and housing. Previously, he was an associate producer for Minnesota Public Radio after a stint at NPR. He also co-founded the Behavioral Scientist and was a Fulbright Scholar to Berlin, Germany.