Twin Cities homeowners rue higher taxes. Lower downtown values are only part of the problem.

Talk about property taxes — go-to fodder for over-the-fence chats between Minnesota neighbors — has taken on a sharper edge in recent years as homeowners in the state’s two largest cities contend with rising costs.

Local and state budgeting decisions draw plenty of blame for high taxes in Minneapolis and St. Paul. But residents and business owners are also increasingly pointing fingers at the post-pandemic decline of downtown office values. Many worry homeowners will have to shoulder more of the tax burden those large commercial property owners previously bore.

While there is not a one-to-one relationship between the assessment of a property’s value and the eventual taxes on it, assessed value is one of many variables that determine a tax bill. The Star Tribune analyzed annual assessment data from the city of Minneapolis and Ramsey County to understand how values in certain sectors — like commercial vs. residential — and neighborhoods have changed, in turn growing or reducing their shares of the tax base.

Since the pandemic, declining commercial values have shifted more of the overall tax responsibility onto residential properties. The shift has been slow, but there’s a clear change in the tax base since the 2010s — a boom decade for the metro’s central cities — and the years immediately following the COVID-19 era.

It might still be too early to tell if there’s anything unusual or seismic occurring, said Benjamin Bedard, manager of assessment services for the city of Minneapolis.

“Real estate markets ebb and flow,“ he said, “and the current percentage of residential value is within the range of the previous 15 years.”

However, he said, it might not feel that way to homeowners.

“These recent changes have been happening very quickly, and they are happening when just about everything else has seen dramatic price increases,” Bedard said. “So even with fair and equitable real estate assessments, the shifting tax burden could cause strain to residential taxpayers.”

The decline of downtown office values contributes to that strain, though it’s not necessarily the biggest factor. In St. Paul especially, the central business district comprises a relatively small portion of the city’s tax base.

“It’s probably going to be three, four, five years before we really get to: What does the normal, more stable composition of what the property tax base really look like?” said Twin Cities-based urban data analyst Jon Commers of SFR Consulting Group.

Residential properties have always made up the bulk of Minneapolis’ and St. Paul’s tax bases. That includes single-family houses, condos, duplexes and triplexes.

Since bottoming out in the Great Recession, Twin Cities home values have steadily risen. Experts point to the economic law of supply and demand: Housing construction ground to halt after the 2008 financial crisis, creating a shortage as the cities’ populations grew.

Apartment values skyrocketed through the past decade. The housing downturn fueled a flurry of large-complex construction as millennials embraced the urban lifestyle. The pace of development picked up in the second half of the 2010s amid low interest rates.

It was the “under-supply of housing — both single-family residential and apartments” that, among other things, “pushed up property values for about 10-plus years,” said Andy Babula, director of the real estate program at the University of St. Thomas.

Through the past 15 years, residential properties’ share of both cities’ total market value has been “pretty steady,” said Nick Greene, property tax research director for the state’s Department of Revenue.

“It’s kind of the apartment and commercial/industrial blend that’s interesting,“ he said. “The apartments have taken on more of that share as the commercial has lost a little bit.”

That momentum swung around 2022, as interest rates and construction costs rose. It became much more difficult to finance large projects like apartments, even though demand for rental units remained strong.

Commercial values declined in the same time period, as an office sector suffering from the double whammy of remote work and interest rates dragged down the whole category.

Homeowners were left to pick up the slack.

The resulting changes in taxes might be less than people expect, Ramsey County Assessor Pat Chapman emphasized. Commercial and industrial properties have higher tax rates than apartments and residential properties.

For instance: In 2025, commercial and industrial properties comprised 16% of Minneapolis’ total value, but such properties will be responsible for 27% of city property taxes. Residential properties make up 63% of the city’s tax base but will cover 54% of its taxes next year.

According to assessment data, offices compose about 6% of the total market value in Minneapolis this year, down from about 10% since the pandemic. In St. Paul, about 5% of the city’s total value has come from office properties in the past decade.

Minneapolis’ shinier and newer office stock had further to fall, and it did.

Take 50 South Sixth, a 24-year-old premium office building on Nicollet Mall that’s home to companies like Deloitte, Dorsey & Whitney and BMO Harris Bank. The 29-story tower has an estimated value of $90 million, according to assessors — down nearly 9% from the year before, and far below the $258 million it last sold for in 2017.

In 2021, 50 South Sixth paid nearly $6 million in property taxes. This year, it owes $3.2 million. That shortfall, and those of peer office properties, is now the responsibility of Minneapolis’ homeowners and other businesses.

It will take time, though, to realize the full impact. The latest assessments incorporate sales between October 2023 and September 2024, and a handful of high-profile Minneapolis office buildings have since sold for deep discounts.

In light of those fire-sale prices, office building owners have also been appealing their values, arguing they should be even lower than what assessors determined. Those cases play out in tax court and can take several years.

Between 2020 and 2025, total property value declined in downtown neighborhoods but grew throughout the rest of the cities.

Minneapolis’ downtown neighborhoods — including the North Loop, Elliot Park, Loring Park and Stevens Square — represent about 20% of the city’s total property value. That share had grown to about a quarter by 2020 but has since fallen back to around a fifth.

Downtown St. Paul has historically been less of an economic engine for the city. In recent years, it composed about 7% of the property tax base on average. Even before the pandemic, downtown property values were softening, Ramsey County assessors said.

“It’s so interesting because a downtown has all of this sort of cultural symbolism and these core institutions that make people feel like: You can’t have a St. Paul without Rice Park, without Landmark or without the Xcel Center, City Hall,” Commers said. “But from a tax perspective, you actually do have that.”

Tax shifts are not limited to city boundaries. If Hennepin County suburbs see greater growth than Minneapolis, they might take on a larger share of the county’s property tax levy, said Greene, with the Department of Revenue.

Looking ahead, Josh Folland, an appraiser for Valbridge Property Advisors, expects Minneapolis and St. Paul homeowners will continue to increase their share of the tax base.

That hasn’t scared away prospective homeowners. In May alone, sellers in both cities on average received more than 101% of their original asking price, according to data from the St. Paul Area Association of Realtors. That meant most, if not all, buyers had to pay more than sellers were asking — despite higher mortgage rates and rising property taxes.

“There’s no new supply being added in great numbers, so it’s a scarcity problem,” Folland said. “I think values are going to keep going up because there’s no geographic expansion area in Minneapolis and St. Paul.”

Several other factors shape an individual’s property tax bill, including local government levies, which are set during their annual budgeting processes. Officials decide how much they’ll need to collect in property taxes to fund services for the coming year.

Each levy is divvied up among taxpayers based on their properties’ assessment and use. A higher assessment doesn’t necessarily mean a higher property tax bill: If everyone’s values grow at similar rates, no one group will take on a larger slice of the levy pie.

Other factors include state policy decisions, exclusions, the metro fiscal disparities program and tax-increment financing.

“All of those add up to be what the ultimate tax bill is,” Hennepin County Assessor Josh Hoogland said. “And I like to point out that the assessor’s not responsible for any of them.”

Jim Buchta of the Minnesota Star Tribune contributed to this report.

Graphics by Yuqing Liu

Data sources: Minneapolis Assessor, Ramsey County Assessor