Everyone knows New York rents are too damn high, but few know one of the main reasons why: because at least one-third of rent goes toward the building’s property taxes – while many co-ops and condos, especially in fast-appreciating neighborhoods, are taxed far below their value. So the current proposals to reform New York City’s system of property taxation may wind up pitting renters against homeowners.
“On average, the Department of Finance is capturing one-third to one-quarter of the tax value (of co-ops and condos),” Ana Champeny, the director of city studies at the Citizens Budget Commission, tells Commercial Observer. “If you have a half-a-million-dollar co-op right now, your DOF value is probably on the order of $100,000; under the new system it will rise to $500,000. If you have a $10 million condo it’s probably (valued at) $1.4 million now, and it would rise to $10 million (under the new proposals).”
The mayor’s tax commission has recommended axing these rules, moving condos and co-ops into the same class as one- to three-family homes, and assessing all of these properties at fair market value.
Meanwhile, renters get the shaft. Multifamily rental buildings are taxed at higher rates than homes, including co-ops and condos, which means that renters are, indirectly, shouldering a larger share of the city’s property tax burden. The tax commission’s report shows that large rentals are taxed at nearly twice the rate of one- to three-family homes and co-ops and at 2.5 times the rate of condos.
But tax reform probably won’t help renters right away. Mark Willis, a senior policy fellow at New York University’s Furman Center, argued that lowering property taxes for large rental buildings would not mean lower rents in the short term. “In the long run we might get more rental property and that would lower pressure on rents overall,” he says, “but in the short term the market rent is the market rent.”
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