Do Rents Go Up When Property Taxes Rise?

Photo by Kanhaiya Sharma on Unsplash

Here in Bangor, Maine, many property owners are getting a rude awakening this week as updated property tax bills start to show up in their mailboxes courtesy of City Hall. This has been the result of a city-wide revaluation of properties, and the impacts on many of those letter-openers have been quite significant thanks to the combination of rising property values over the past several years and a steadily increasing municipal budget overall.

Here in Maine, cities and towns are almost entirely dependent on property taxes to pay for local services. Every dollar of state sales tax, income tax, meals and lodging taxes, and even the revenue from speeding tickets written by local police officers goes to the state budget in Augusta, leaving municipalities with primarily one clunky source of revenue for themselves: the property tax.

It’s not just a Maine thing, though. Property taxes are on the rise throughout the country, not just here in the Northeast. Why? Well, a generally inflationary atmosphere that has impacted individual and family budgets has hit city budgets, too. Just as the costs of materials, repairs, and supplies around the house have increased in recent years, so too have these same types of expenses for cities and towns. Plus a significant portion of a city budget is personnel, and if you want to attract and retain employees in today’s economy, you of course have to pay them. A good portion of municipal labor pools are unionized as well, so city governments can typically expect annual wage increases of 3-5%+ under negotiated contracts.

But the cost of local government has also outpaced the general rate of inflation, so rising costs are not the only story. In 2015, total property tax revenues collected nationwide were about $526 billion. If that figure had simply kept pace with inflation over the past ten years, total collections in 2025 would have been about $741 billion. But the actual total of property taxes collected nationwide in 2025 was $834 billion, which is roughly 59% more than in 2015.

One reason for the increase in property taxes is that more costs have been shifted to local governments. Federal and state governments can and do issue all manner of unfunded mandates for cities and towns to comply with that don’t necessarily come with funding attached to them. These types of requirements are a constant challenge for local leaders to navigate.

But the other big reason why city budgets are swelling is that people actually like municipal services. People like the idea of fiscal restraint, and no one wants to see wasteful spending. But take it from me, after previously spending nine years on the Bangor City Council (2011-2020) including two years as mayor of Bangor, once you start to actually make meaningful cuts in order to reduce the budgetary impact to taxpayers, people often get even more upset about those cuts than they do about their rising taxes. People like their public works, police, fire, and schools, and the local library. I think there is always some fluff you can find to cut out of a local budget with relatively little impact, but this is typically only small items with a relatively meaningless impact to the budget’s bottom line.

So people understandably want it both ways: they want the municipal services they expect (and, indeed, often truly need), and they want taxes to remain low or at least reasonable. How we actually solve that problem here in Maine and elsewhere is beyond the scope of today’s article. Tax reform is simultaneously politically complicated and incredibly dry. It’s not exactly the type of issue that gets candidates for governor or the state legislature and their followers fired up on the campaign trail.

But all of that is a bit of a digression from today’s topic, which is what happens when property taxes increase by, say, 15-20% in a single year, or 20-40% or more over several years. For some homeowners, especially those living on fixed incomes, those increases create a very real financial squeeze and, sadly, may even force some people out of homes they otherwise could have continued to afford.

But what about rental properties? That is the subject of today’s analysis.

Do Rents Rise When Property Taxes Go Up?

Property taxes are one of the key expenses in the cash flow budgets of rental property owners. In many businesses, when the cost of inputs rises, those increases are ultimately passed along to customers. A restaurant paying more for beef may raise the price of a hamburger. An airline facing higher fuel costs may increase ticket prices. A manufacturer paying more for steel often charges more for the finished product. It is natural to assume rental housing works the same way, which means it would be equally natural to assume that when property taxes go up, that cost simply gets passed along to the “customers,” which in this case is the tenants, in the form of higher rents.

In fact, during this whole discussion over Bangor’s higher property tax bills over the past few weeks, I’ve seen more than one landlord whom I’m Facebook friends with commenting on their own posts or on other people’s threads with some version of, “Welp, I guess we’re going to have to raise rents.” The implication is that it is the City Council forcing their hand, so they should be seen as the bad guys when rent increases are passed along to tenants. Rents here have already risen substantially over the past five to ten years, matching trends seen throughout much of the country, and no one wants rents to continue climbing, least of all renters, nor would I expect any local officials to want this to happen either.

One of the challenges for rental property owners is that many of the costs of owning real estate have increased dramatically over the past several years. These include property taxes, certainly, but also insurance premiums, repairs and renovations, and the cost of borrowing as interest rates are still a lot higher than they were 5-7 years ago. In fact, I have little doubt that these rising ownership costs are one of the reasons rents have increased so much over the past decade. Landlords have, in many cases, been able to pass at least some of those higher costs along to their tenants.

But a lot of the frenzy has eased from the housing market, both with regard to single-family home purchases and rental real estate. What some property owners and landlords may come to realize is that rents are not entirely determined by landlords’ costs. They are determined by the market.

I realize it may sound somewhat callous to describe housing as simply another market, but I’m speaking in economic terms. Rental housing is a business, and like virtually every other business, pricing is ultimately determined by supply and demand. What this means is that even if property owners want (or genuinely need) to increase rents to cover rising costs, they can only do so to the extent that the market allows. The question of what the market will bear is not determined by property tax levels, per se, or by any other individual expense or combination of expenses. Instead, it is determined by the overall supply of available housing, vacancy rates, local population trends, wage growth, employment conditions, and all sorts of other broader economic forces.

One particularly interesting rental market that I have written about several times over the years is Austin, Texas. It’s a case study I keep coming back to in The Sunday Morning Post, and one that policymakers all over the country should be aware of. The Austin City Council is currently working through a budget that includes a property tax increase of roughly 6-7%. But you can be fairly certain that many rental property owners there will not be able to pass those higher taxes on to tenants, because Austin rents have been declining, and they’ve been doing so more than almost anywhere else in the country.

Why? Because Austin experienced a massive wave of new apartment construction over the past decade. Thousands of new units entered the market, dramatically increasing the housing supply. That increase took much of the frenzy out of the rental market and gave tenants more choices. The competitive leverage shifted from landlords to renters. Property owners suddenly found themselves competing more aggressively for tenants who suddenly had many more choices on where to live, and rents declined.

The Pew Charitable Trusts recently summarized the situation in Austin as such:

Starting in 2015, Austin instituted an array of policy reforms aimed at encouraging the development of new housing, especially rentals. The city changed zoning regulations to allow construction of large apartment buildings, particularly near jobs and transit. In 2018, voters approved a $250 million bond measure to build and repair affordable housing. Permitting processes were reformed to speed development and reduce costs.

The efforts worked. From 2015 to 2024, Austin added 120,000 units to its housing stock—an increase of 30%, more than three times the overall rate of growth in the United States (9%).

Rents fell. In December 2021, Austin’s median rent was $1,546, near its highest level ever and 15% higher than the U.S. median ($1,346). By January 2026, Austin’s median rent had fallen to $1,296, 4% lower than that of the U.S. overall ($1,353). This decline occurred even though the city’s population grew by 18,000 residents from 2022 to 2024.

To underscore what I’ve highlighted above, during a period when rents nationwide were generally increasing, Austin rents fell by $250 per month, or just over 16%.

The policy implications are clear: If you want to improve housing affordability, increasing the supply of housing is one of the most effective tools available. That means encouraging new construction through zoning reforms, permitting improvements, and other policies that make it easier to build, if not outright subsidizing construction.

But there is an equally important lesson for rental property investors. While it is certainly necessary to understand your own expenses and cash flow, it is equally important to understand the broader market in which you operate. Investors should pay close attention to the pace of new housing construction, vacancy rates, local employment trends, population growth, and wage growth. Those factors are going to have a greater influence on future rents than whether your own property tax bill went up this year.

Fortunately for many rental property owners, dramatic market shifts like those seen in Austin are relatively uncommon. In much of the country, housing construction remains well below what economists believe is necessary to meet demand. New apartment projects can take years to move from planning to completion, and restrictive zoning, labor shortages, financing costs, and higher construction expenses have all slowed the pace of new development. That means housing supply often changes only gradually, allowing rents to remain relatively stable (or continue rising) in many markets despite higher operating costs.

Austin represents an unusually large and rapid increase in housing supply, making it one of the clearest examples in the country of how market forces can outweigh rising operating expenses. Most cities are unlikely to experience that kind of dramatic shift anytime soon. Nevertheless, the underlying economic principle remains the same regardless of location: landlords don’t set rents based solely on what they need to charge; they set rents based on what competing properties are charging and what tenants are willing and able to pay.

So, do higher property taxes lead to higher rents? The answer is yes—and no. Higher property taxes certainly increase the financial pressure on rental property owners, just as rising insurance premiums, maintenance costs, and interest rates do. Those higher costs create a strong incentive for landlords to raise rents whenever leases come up for renewal.

But incentives and outcomes are not always the same thing. In the end, rents are determined by the marketplace. In communities with limited housing and very low vacancy rates, landlords may be able to recover a good portion of those increased costs by raising rents, and they probably will. In communities with abundant housing and intense competition among property owners, they may recover very little or even experience losses themselves as the result of significant property tax increases.

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Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com. Thoughts and opinions here do not represent First National Bank.