Co-op and condo residents in New York City who yearn for property tax reform should be careful what they wish for. Why? Because, as Bloomberg City Labs reminds us, the lopsided and unloved system of levying property taxes, which is actually controlled by the state, largely favors high-end co-ops and condominiums.
New York City’s system, which divides properties into four classes, is regressive, taxing wealthy homeowners at a much lower rate than middle-class homeowners — and taxing condo and co-op owners at an even lower rate still.
New York State law requires condo and co-op properties — Class 2 in the byzantine system that applies to New York City and Nassau County — to be assessed as if they were rental properties. To comply with the law, assessors impute the value of condos based on rents in comparable apartment buildings. This leads to dramatic under-valuation of condos, for two reasons.
One, most apartment buildings are subject to rent control, so imputing the assessed value of a condo building based on rents at a similar apartment building leads to a huge delta. That’s how the owner of a $5.8 million condo in Soho gets an assessed value of $95,000, meaning lower property taxes than a homeowner in Brooklyn might pay and even less than one in the Bronx.
Two, oftentimes there aren’t really any comparable rentals. What apartment building matches up with a pencil-skinny condo tower like 432 Park Ave.? This is why billionaires pay next to nothing in property taxes for the most privileged properties in New York City, making Billionaires' Row an excellent destination for foreign investors to park their cash.
Like many of his predecessors going back as far as Ed Koch, Mayor Bill de Blasio pledged to repair this system. In 2018, he and New York City Council Speaker Corey Johnson convened a high-profile commission to review the city’s convoluted property tax regime. The commission released its preliminary findings in January 2020. Tellingly, one of the commission's recommendations is to peg co-op and condo property tax assessments to the apartment's market value.
“The current system is not fair,” the commission’s preliminary report reads. “Among the most salient reasons for that unfairness is the uneven share of market value captured among co-ops and condos because of state law requirements on their valuation.”
Meaningful change to New York property assessments will require not just the support of the mayor and City Council but also the state Legislature and the governor. It will likely fall on the next mayor to set the course. With potential pressure coming from some of New York City’s wealthiest residents who would face far higher tax bills, it won’t be an easy road. Eric Adams is another New Yorker who should be careful what he wishes for.
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