Report Says Property Taxes Favor High-End Co-ops and Condos

A new voice has joined the growing chorus calling for reform of New York City's inequitable and unloved system of levying property taxes. This new voice claims that the owners of high-end co-ops and condos are benefitting unfairly at the expense of less well-off New Yorkers.

In a new report called Footing the Bill: Fifty Years of NYC Overtaxing Tenants, Towers and Low-Income Communities of Color, the Community Service Society and the Progress and Poverty Institute collaborated to examine the origins of the current disparities in property taxes — and offer proposals for making the system more fair.

The authors of the report, Iziah Thompson and Stephen Hoskins, write: "We found that NYC’s present-day tax code puts a disproportionate tax burden on multifamily apartments, the suppliers of the lion’s share of New Yorkers’ housing, and families of color. Furthermore, our data shows that NYC consistently charges high-value buildings lower effective tax rates and over-taxes lower-value buildings, rewards ownership over renting, and under-taxes speculators who sit idly, waiting for value to rise on vacant and underutilized land."

The report ticks off the evidence:

Size matters. "Low-density residential properties comprising 1-3 units (Class 1) pay an effective tax rate of only 0.7%, significantly lower than for all other classes of property," the report states. By comparison, apartment buildings with more than 10 units pay an effective tax rate more than five times higher.

Location and race matter. "Some of the last remaining mostly Black neighborhoods in the city — Canarsie, East New York and Cambria Heights— are paying tax rates double those paid by Park Slope or East Village homeowners," the report states.

Assessments matter. "Department of Finance’s technique for valuing commercial properties, co-ops/condos, and rentals leads to the undervaluing of the most luxurious buildings and forces lower value sites to pick up a greater tax burden," the report states.

Rather than assessing co-ops and condos on sale prices (market value), the city assesses them on the basis of the income in comparable rental properties in the neighborhood. The result is artificially low assessments for the most valuable co-ops and condos. The inequity is worsened by well-intentioned annual caps on tax hikes, which vary by property class and have the effect of lowering tax bills on properties that are increasing rapidly in value, while raising the relative tax bill on properties that are appreciating at a slower rate, or not at all.

The report offers short-term solutions, including: put all residential properties below 10 units in a single tax class; value all large commercial and residential properties using an income-based approach; tax all properties on the basis of their actual assessed value; if residential or commercial properties have been vacant for at least 180 days without a building permit, they should be taxed based on full market value.

And long-term solutions: after instituting the above reforms, end the co-op and condo tax abatement because it will no longer be necessary; award cash transfers to rental tenants equal to tax relief enjoyed by homeowners; reduce taxes on building improvements and raise them on land values.

New York City, the report concludes, has "an unacceptably regressive property tax structure that benefits the haves over the have-nots."