As Texas lawmakers tussle over property tax relief, it’s unclear whether renters will benefit

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As a deal to cut Texas’ high property taxes continues to evade Republican lawmakers, Democrats in the Legislature unveiled a long-shot tax-cut proposal Thursday that targets relief to a group of taxpayers who have been largely left out of the debate: renters.

Tenants make up more than one-third of the state’s households. They pay, via their monthly rent, one-quarter of the state’s school property taxes — which are among the highest in the nation. Renters’ cost of living surged during the COVID-19 pandemic as the state’s housing boom drove rents sky-high. But this year, GOP lawmakers have all but ignored renters as they tussle over whether homeowners or businesses should get a bigger break on their property taxes.

Democrats sought to change that Thursday by making tax relief for renters a pillar of a four-pronged tax-cut package. Under the proposal, renters would get a cash refund equaling up to 10% of the rent they paid the previous year.

“​​You can’t talk about property tax reductions without talking about every Texan, not only homeowners, but also 3.8 million householders who rent their homes,” said state Rep. John Bryant, a Dallas Democrat who helped craft the package.

Under the proposals, landlords would submit documents to the state comptroller’s office showing how much tenants paid in rent. The comptroller’s office would then calculate the cash rebate, Bryant said. It wasn’t immediately clear how long the program would last, but spending in the Democratic proposal is capped at $3.8 billion.

Texas doesn’t give an explicit tax break to renters as several other states do — and none of the GOP proposals for property tax relief include anything that unquestionably benefits renters. Renters don’t own their own homes, so they can’t claim homestead exemptions, the chunk of a home’s value that can’t be taxed to pay for public schools. Lt. Gov. Dan Patrick and Senate Republicans want to raise the state’s homestead exemption on school district taxes from $40,000 to $100,000.

Some Republicans and tax policy experts have occasionally argued that renters would see relief from rising rent bills if lawmakers send a certain amount of money to school districts so they can lower their tax rates, a break legislators call “tax rate compression.”

The chunk of $12.3 billion in property tax cuts that should be spent on compression has been a sore spot and key dividing line between the state’s top Republicans. House Speaker Dade Phelan wants to use all $12.3 billion on compression while Patrick wants to use a little more than two-thirds on compression and the rest on raising the homestead exemption.

Renters aren’t the only taxpayers who would see relief under House Democrats’ tax-cut package. Homeowners would see their homestead exemption climb to $100,000 or 25% of their home’s appraised value — whichever is higher, though it would be capped at $200,000. Democrats would set aside money to cut school property tax rates, though not as much as Republicans in either chamber.

The tax-cut proposal put forth by Democrats also would boost the state’s basic allotment — the base amount the state gives schools per student, which currently sits at $6,160 and hasn’t changed since 2019 — by $1,000. That would translate to a “permanent” $4,300 pay bump for teachers, Bryant said.

It’s difficult to measure how much renters would benefit from compression. Property taxes make up about 20% of every rent dollar paid by Texas tenants, according to figures provided by the Texas Apartment Association — though that percentage can be higher in the state’s urban areas. If a landlord’s property taxes don’t climb as quickly as a result of tax cuts, the thinking goes, their tenants’ rents won’t rise as fast either. That effect will spread to the rest of the market as landlords compete for renters, experts said.

“It wouldn’t necessarily happen immediately, but I think it would happen pretty quickly,” said Adam Langley, associate director of tax policy at the Lincoln Institute of Land Policy, a Massachusetts-based think tank.

But tax policy experts agree that it’s unlikely tenants would see their rents fall as a result of tax cuts. And what a tenant would have paid in rent had it not been for tax cuts is difficult, if not impossible, to prove, policy experts acknowledge.

Tax cuts don’t necessarily guarantee that rents won’t climb as quickly, either. Although property taxes make up the largest chunk of landlords’ overhead, other costs to run a rental property — like property insurance, labor and maintenance — also get passed along to renters, and those expenses can fluctuate and contribute to higher rent bills.

“Property taxes are currently the single largest expense for rental housing owners in Texas, and we welcome all efforts to address those rising costs,” said Chris Newton, the Texas Apartment Association’s executive vice president. “It will come as no surprise that other expenses that contribute to market rents, such as insurance, building materials, equipment and labor, are also increasing and have risen sharply over the past several years. Like property taxes, these increasing expenses impact market rents.”

Ultimately, landlords charge rents based on what the market will allow — regardless of how big of a tax cut they get.

“It really all comes down to supply and demand in each local market,” said Lynn Krebs, a research economist at the Texas Real Estate Research Center at Texas A&M University. “If the market is tight and there’s still not enough housing, as is the case in many markets, it’s probably not going to matter.”

Higher property taxes can drive up rents in some instances. The estimated tax bill for a South Dallas fourplex owned by landlord Nathaniel Barrett climbed by more than a third this year, Barrett said — from about $7,500 last year to a little more than $10,000. Barrett said he had to pass along that increase to his tenants, who will pay $50 more a month than they did previously. But in most instances, Barrett said, the market, not property taxes, drives rental costs.

If lawmakers want to provide meaningful tax relief to homeowners and renters alike, they should loosen local restrictions that some housing advocates say get in the way of building new housing, Barrett said — which would spread the property tax burden among a greater number of households. Such measures died a quiet death in the Legislature this year.

“We should be seeking to lower the value of property by making it easier to build things,” Barrett said. “That is where that relief should come from.”

Asking rents in Texas’ major metro areas — including majority-renter cities like Austin, Dallas and Houston — are well above where they were before the COVID-19 pandemic — anywhere from 19% higher in the Houston area to 37% higher in the Austin region, according to Zillow rent data.

Renters aren’t as financially well-off as homeowners as a result. Across the state’s major urban areas, about half of all renters — who are more likely to be people of color and have lower incomes — are now considered “cost-burdened,” meaning that they spend at least 30% of their income on keeping a roof over their heads, according to the Joint Center for Housing Studies at Harvard University. By comparison, about one-fourth of homeowners in the state’s largest metro areas are under similar financial strain.

Compression is not enough to provide substantial financial relief to the state’s ailing renters, housing advocates argue.

“It’s not good enough,” said Ben Martin, research director for Texas Housers, a housing advocacy group for low-income Texans. “Renters are in crisis. Where rents are right now is too high for a lot of renters in the state of Texas. And so saying that your rents are gonna go up not quite as much is not helpful. It’s not meeting the crisis where it is.”

Bryant was skeptical that renters would see any benefit from tax rate compression.

“It would provide a lot of help for the landlords, but they’re not going to pass any savings along to renters,” Bryant said Thursday.

Other states have ways of giving direct property tax relief to renters. Seventeen states and the District of Columbia have “circuit breaker” tax-cut programs that give renters a credit or rebate when rents exceed a certain percentage of their income, according to the Lincoln Institute of Land Policy. Those programs, often tailored to seniors and low-income renters, assume that property taxes make up a certain chunk of the rent bill and use that to determine a refund to renters.

How Texas might implement such a program targeted at renters is unclear. Texas doesn’t have an income tax, which many states use to determine whether renters qualify for rebates and to distribute those refunds. But other states dole out the money without using an income tax system.

It’s also unclear what appetite Republican lawmakers have for providing direct renter relief, but Bryant said he thinks some Republicans would vote for it.

Nonetheless, House Democrats see urgency to find a way to bring some tax relief to renters.

“We cannot ignore the fact that renters have been left out of this conversation from the very beginning,” said state Rep. Christina Morales, a Houston Democrat. “Renters deserve to receive their fair share of tax relief.”

Disclosure: Texas A&M University, the Texas Apartment Association and the Texas comptroller of public accounts have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.

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