Single-Family Vs. Multi-Family Real Estate Taxes

Historically, single-family dwellings in the U.S. enjoy lower property taxes than multi-family dwellings, especially apartment buildings. Commercial real estate interest groups, such as the National Family Housing Council, have long complained about the rate differences, while residential real estate interest groups have defended them.

Comparisons Using Property Values

A 2005 report on apartments and property taxes published by the National Multi Housing Council -- NMHC -- maintains that property taxes for apartment dwellings are one of the biggest operating costs, and that, on a property-valuation basis, multi-family property taxes are higher than property taxes in single-family dwellings. According to NMHC, annual property-tax assessments for single-family dwellings nationwide have a mean tax-to-value ratio of about 1.1, while multi-family dwellings have a mean tax-to-value ratio of about 1.3. A 2012 report from Keystone Politics notes that seven years later, a similar disparity still exists.

Comparisons Using Income

The disparity between tax rates for multi-family dwellings and single-family dwellings increases if rental incomes, rather than valuations, are compared. A 2011 study by Western Assets notes that the average price-to-rent ratio for distressed single-family housing -- which has per-square-foot costs similar to multi-family rental housing -- is 8.3 times rent. The ratio for multi-family housing is 10.6 times rent. Therefore, using the NMHC tax statistics, $1 million of multi-family housing produces $94,440 in annual rental income at an annual tax cost of $13,000. In comparison, $1 million of single-family rental housing produces $120,481 of annual rental income at an annual tax cost of only $11,000. Per dollar of income, taxes on single-family dwellings are about one-third less than taxes on multi-family dwellings.

Reason for Tax Disparity

Both the NMHC Research Notes and Arthur O'Sullivan, author of "Property Taxes and Tax Revolts: The Legacy of Proposition 13," point to the same possible reason for higher tax rates for multi-family dwellings: owners of single-family dwellings comprise a bloc of voters that's 10 times larger than the owners of multi-family dwellings.

Problem and Possible Solution

As O'Sullivan points out, one result of the tax advantage enjoyed by single-family dwellings is that it acts as a disincentive for builders of the higher-density housing needed to lower transportation costs and energy consumption. Municipalities are beginning to modify tax codes to remedy that. Officials in Bremerton, Washington, for example, recognizing both the need for higher-density housing and the political problems that might ensue from raising taxes on single-family dwellings, have modified the local tax code to provide exemptions from property taxes for periods of time ranging from eight to 12 years for low-cost multi-family construction.