Business

How deadbeat landlords are fueling housing crisis by evading taxes

By
Social Links for Ariel Zilber
Published Aug. 4, 2022
Updated Aug. 4, 2022, 5:29 p.m. ET

Deadbeat landlords are fueling the national housing crisis by refusing to pay property taxes — instead allowing low- and middle-income homes to go into foreclosure, thus removing houses from the market and dimming supply, according to experts.

Ownership laws in the US enable landlords to shield their identities behind limited liability companies (LLCs) that let them avoid legal consequences for allowing the properties to fall into disrepair, experts told The Hill.

Landlords take advantage of LLCs by simply declining to pay property taxes and giving back their properties to the city — which decreases supply in areas where there is high demand.

Research has “linked LLC ownership to property disinvestment, tax abandonment, even completely walking away from properties,” Matthew Desmond, a sociology professor at Princeton University, told the Senate Banking, Housing, and Urban Affairs Committee on Tuesday.

“One of the landlords I spent time with in Milwaukee, I asked her, ‘What happened to this house that I spent a lot of time with?’ And she said, ‘I just gave it back to the city.’ And what she meant was, she just stopped paying taxes on it and let it go into tax foreclosure,” Desmond said. 

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Lawmakers from both sides of the aisle have expressed concern over the increase in home ownership by professional investors. NY Post illustration

“Tax foreclosure should not be part of a business strategy, but for some landlords who use LLCs, it is,” he said. 

Members of Congress have expressed concern over the increasing rates of property ownership by professional investors — a trend that has contributed to surging rents.

In February, professional investors made 28.1% of all single-family purchases, a record high, according to the real estate market data firm CoreLogic.

Before the pandemic, investors accounted for 14% of home purchases, the firm found.

The tight housing supply has sent real estate prices soaring, making home ownership less affordable for average Americans.

The national median home price jumped 13.4% in June from a year earlier to $416,000. That’s an all-time high according to data going back to 1999, the National Association of Realtors said.

Experts say investors take advantage of LLC laws to throw properties into foreclosure, allowing them to skirt taxes.
Experts say investors take advantage of LLC laws to throw properties into foreclosure, allowing them to skirt taxes. Getty Images

Lawmakers from both parties said they were concerned that LLCs allowed investors to avoid transparency. Some use the LLC laws in the US to launder ill-gotten gains that may otherwise be seized by foreign governments, a legal expert said.

“I represent the richest people in the world and some of the most famous people in the world, and they will not buy a property unless it’s in the name of an LLC, sometimes more than one LLC, and they do that in order to keep that anonymity, so people don’t know who’s buying the property,” Adam Leitman Bailey, a New York-based real estate attorney, told The Hill.

“In nefarious ways, it allows people from various countries to buy property in another country, to buy property in America.”

Bailey added: “Let’s say they’re trying to hide money. They can do so by using an LLC, and people won’t know who they are.”