Everyone should have a safe place to sleep at night. Unfortunately, a growing number of Montanans are paying unsustainably high levels of rent, and the number of unhoused Montanans is growing. There were nearly 5,000 unhoused students in Montana’s public schools in the 2021-2022 school year, a 29 percent increase since the 2016-2017 school year.
The Montana Housing Fairness Credit would help reduce unsustainable housing costs for Montanans with low and moderate incomes by providing a tax credit for renters and homeowners who pay high effective property tax rates.
The connection between increasing property taxes and unaffordable housing is strong. Renters pay property taxes through their rents. When property taxes rise, rents follow suit. Not only that, property taxes are also regressive, meaning that families with low and moderate incomes pay higher effective tax rates than the wealthy. For those living in the bottom 10 percent of income in Montana, the Montana Housing Fairness Credit would cut their effective property tax rate in half, going from nearly 9 percent down to less than 5 percent. This drop in effective property tax rate makes a huge impact on those most affected by rising housing costs.
While property taxes do play a role in housing costs, they are also essential for our communities. Property taxes ensure adequate and equitable funding for our public schools and local government services, like road maintenance. As communities grow, the need for these services increase, as do the values of property. The most recent reappraisals found that in almost all communities across Montana, residential property values are growing much faster than other types of property. This is due in part to increasing demand for homes in Montana, as Montana has the second highest in-migration of new residents in the nation.
Rising property taxes and their impact on housing costs is only getting worse. Over the past few decades, the share of property taxes paid by homeowners and renters has increased while the share paid by owners of business and agricultural property has decreased. This great tax shift has multiple contributing factors, including legislative decisions to exempt business property from taxation and the faster-than-average growth in residential property values.
The great tax shift has moved tax responsibility from business and agricultural property to residential homeowners and renters. What’s maddening is that the great tax shift is most felt by Montanans living on low or moderate incomes who are already paying high property tax rates, and feeling the brunt of rising housing costs.
Luckily, the Montana Housing Fairness Credit can address the tax shift without risking education funding for all Montana kids.
MBPC is a nonprofit organization focused on providing credible and timely research and analysis on budget, tax, and economic issues that impact low- and moderate-income Montana families.