Addressing Housing Affordability in Kansas through Equitable Property Tax Relief
Safe, stable, affordable housing is a basic need and a human right to which all Kansans should have access. Housing determines many aspects of life, including physical and mental health, quality of life, access to education, and economic outcomes. Quality housing contributes to the well-being of children and families and is essential to achieving safety and security. Children are most vulnerable to the adverse effects of housing insecurity and the widespread disruption it causes.
Adequate and affordable housing is also key to the Kansas economy and the economic health of communities across the state. Affordable homes attract and retain economic development and employers who know they can rely on a strong local workforce. Workers with safe and stable housing are more present, productive, and healthy as they experience less stress and related illnesses and can afford the nutrition and health care they need.
Whether housing is acquired through ownership or renting, it should not require an individual or family to forgo the other necessities they need to thrive. As the state works to develop a more equitable tax system, both renters and homeowners of all ages should be treated fairly, with the focus being to ensure that all Kansans can afford a safe place to live.
Housing Is Unaffordable for Too Many Kansans, Especially Renters
Housing is generally considered “affordable” if the cost burden or percent of household income spent is less than 30 percent. On top of the rising costs of other necessities such as food, utilities and child care, many households, particularly those with low-incomes, are more cost-burdened as housing costs in Kansas and the Midwest continue to climb and wages continue to stagnate. In Kansas, renters are more prevalent among households with lower incomes. In fact, homeowners are only more prevalent for those with a household income above $75,000.
Additionally, renter households are more cost-burdened by housing expenses, representing more than half of the 288,000 households across all incomes who live in unaffordable housing. One in five of these households have incomes below $20,000.
In Kansas, the age of a homeowner versus a renter are inversely related, meaning that the younger a householder, the more likely they are to be a renter and the older they are, the more likely they are to own their home. While they attend school and/or start careers, teenagers and young adults often cannot afford to buy a home, resulting in more than 82 percent in the 15- to 24-year-old category being renters. Within all households of that same age group, close to 85 percent of renters spend more than 30 percent of their monthly income on housing.
A recent statewide housing assessment provided several insights into the housing market in Kansas and perhaps why affordable housing is out of reach for many renter households, who make up one-third of the total households in the state.
From 2010-2019, renting increased in all parts of the state, and homeownership went down in all but one metro area. More than 60 percent of renter survey respondents in every region said they rent because of necessity, as opposed to flexibility, lower maintenance needs, or amenities.
Income for renters (who are more likely to be low income and experiencing poverty) is not keeping up with inflation and is lagging behind those of owners. In every region, the incomes of owner households grew more than renter households, with the most growth among those in metropolitan areas and the least in rural areas.
Kansas renters are more cost-burdened than owners. Between 2010-2019, the state’s share of cost-burdened renters increased 61 percent compared to 30 percent for homeowners.
A combination of limited supply, high rent, and older housing stock has caused greater competition for available housing and led to less turnover in occupancies from households moving to match their incomes or stage in life (e.g. downsizing in old age or upsizing to start a family).
There is no county in Kansas where a renter working full-time at minimum wage can afford a two-bedroom apartment. A renter would need to work 75 hours a week at the current $7.25 minimum wage or make at least $16.91 an hour to achieve that in Kansas. The minimum wage, which has been stagnant since 2009, is not enough to meet the cost of housing. Low wages trap families in poverty and make it impossible to afford the necessary expenses incurred in a household. Nearly one in five renter households live at or below the poverty level compared to 1 in 20 homeowning households living below the poverty line. Renter households are disproportionately affected by the failure to increase the minimum wage, which keeps families in a state of financial struggle, particularly when 39.7 percent of renters are spending 30 percent or more of their income on housing, compared to 17.6 percent of homeowners.
Among other solutions, a minimum wage increase is desperately needed to raise all Kansans out of poverty and toward economic security.
Solving the State’s Affordable Housing Shortage
A sustainable and long-lasting solution to make housing more affordable should combine solutions to both housing availability and affordability so that more Kansans can afford an adequate place to live without risk of being priced out by high demand and competition. During the 2022 Legislative session, lawmakers began this process when they appropriated $62 million in grants and loans to be invested in the development of moderate income housing – a huge increase from the $2 million typically spent. New-build homes will certainly make housing more available and hopefully lower the cost of rent, but the results may not be seen for several years and still does not guarantee that renters will receive any relief.
Using the Tax Code to Lower the Cost of Housing
Part of the cost of housing for both homeowners and renters is property tax. For homeowners, it is a familiar and easily identifiable tax. But for renters, landlords factor property tax into the cost of rent. Having established that lower-income households are more likely to rent than own, property tax ends up having a regressive effect on renters because lower-income households pay a higher share of their income in taxes than higher-income households.
In Kansas, the lowest-income 20 percent of taxpaying households (making less than $21,500 annually) pay 4.1 percent of their household income on property taxes. Meanwhile, the top 1 percent (making $479,200 annually) pay just 1.8 percent of their household income on property taxes.
To address and correct the disproportionate impact that property taxes have on low-income households, the state’s tax policy must include provisions to provide relief to those who need it. A few already exist but they exclude too many Kansans or are poorly targeted to truly be beneficial and cost-effective.
The current programs are:
Residential Property Tax Exemption
- All homeowners receive an exemption on the first $40,000 of their residential property's value from the state levy of $2.30 for every $1,000 to fund K-12 education. Though small savings, it does make a difference for households with lower incomes.
Homestead Property Tax Credit
- Available to households with an income below $36,300 if the filer was born before 1966, is blind or totally and permanently disabled (regardless of age), or has a dependent child under age 18. The maximum refund is $700.
Selective Assistance for Effective Senior Relief (SAFESR) Refund
- Available only to seniors age 65 and older with a household income of $20,900 or less and a home valued at less than $350,000.
- The refund is 75% of the general property tax paid or to be paid.
Golden Years Homestead Property Tax Freeze
- Available to seniors age 65 years and older or disabled veterans (regardless of age) with a household income of less than $50,000 and a home valued at less than $350,000.
- The maximum refund is $2,500.
All four of these programs exclude renters; the three tax credits also leave out most Kansans who are not seniors. If the goal is to help those most in need (i.e., households with the lowest incomes and/or the highest housing costs as a share of income), a “circuit breaker” would be a better program to benefit households as well as the state’s budget.
What Is a Circuit Breaker?
In electrical wiring, circuit breakers are important safety switches that automatically activate when there is an overload on a system, protecting it where and when it’s needed. Property tax circuit breakers work in the same way by providing relief to taxpayers when their property tax bill (or the calculated equivalent for renters) exceeds a certain percentage of household income. They are designed to reduce the cost burden on households by considering their ability to pay.
Property tax circuit breakers are currently used in 18 states and Washington D.C. to assist the households that need it most (particularly low- and middle-income households) without significantly reducing overall tax revenue. Circuit breakers have many advantages that make them more ideal than the general homestead exemption or any of the credit programs Kansas currently uses.
Advantages of a Circuit Breaker
A circuit breaker is activated when a property tax bill rises above a certain amount of household income, so only those who need it most will receive this form of tax relief. The general residential exemption applies broadly to all households, including those with high incomes and a low housing cost burden, unnecessarily increasing the cost of tax relief. Better targeting the application will also cost the state less in expenditures and foregone revenue needed to operate programs and services essential to Kansas residents. Recently, a legislative change to the residential exemption raised the exemption from $20,000 to $40,000 of home valuation, requiring the appropriation of an additional of $42.8 million in State General Fund money to the FY 2023 K-12 education budget to make up for lost revenue. It is estimated the change will save homeowners an average of just $46 per year. A more focused circuit breaker would allow an increase of the total annual benefit to a more meaningful amount.
Perhaps most impactfully, renters can also be given relief under circuit breakers. None of the state’s current property tax relief programs include renters, even though they also pay property taxes, albeit indirectly as a part of their rent. Renters are included in circuit breaker policies in 15 of the 18 states, where a percentage of rent is counted as a property tax equivalent and factored into the circuit-breaker calculation just like homeowner tax payments. Excluding renters from property tax relief unfairly withholds help that could keep families from homelessness or help them afford to feed and care for their children. The exclusion also disproportionately impacts low-income households and people of color who are more likely to be renters due to several factors, including historically lower wages and generational wealth, as well as discriminatory practices in housing markets and mortgage lending.
- A circuit breaker would eliminate the need for age or other non-income-related requirements. There is no convincing justification for limiting property tax relief based on age or any other arbitrary characteristic. All Kansas families struggling to afford housing should be able to access this benefit if they simply meet the qualifying cost-burden threshold. Currently, seniors age 65 and older qualify for all programs, granted they meet the income and home value eligibility, and filers who are blind, totally and permanently disabled, have a dependent minor, or are a disabled veteran (regardless of their age) qualify for one program each. Including all ages in eligibility would also provide relief for younger Kansans who are more likely to be renters. Providing property tax relief to teenagers and young adults could impact where they choose to live, work, start families, and invest their resources. The state can – and should – make it easier for them to choose Kansas as their home.
If the objective is to relieve property taxes for Kansans trying to find their economic footing amid the rising cost of living, a circuit breaker can provide more meaningful relief at less cost by targeting relief dollars to those who need it most.
Kansas lawmakers have already shown a willingness to help Kansans find affordable housing by offering property tax relief and making historic investments in the development of new homes across the state. A well-designed, targeted circuit breaker will improve those efforts by maximizing relief for those who need it most in a more fair and cost-effective way. All Kansans deserve safe, stable housing that will not leave them unable to afford other necessities. Lawmakers should seize this opportunity to channel precious state government resources to benefit children and families and make Kansas a state where all can thrive.