Why NYC Rent Is So High (It’s Not Airbnb) | Hacker News Reader

Why NYC Rent Is So High (It’s Not Airbnb)

professional-troublemaker.com

48 pointsmaratd70 comments

> But in New York City, you owe the city between 10.6% and 20.0% of your property’s assessed value, every year.

> Let’s put this in perspective. In the very residential and fairly affordable (for Manhattan) East Village, a pre war, 5-story, apartment building with 15 1-bedroom units and a storefront may have a market value of about $5M. “Assessed values” tend to be lower than actual market values (both in NYC and most other cities), so you might end up with an assessed value of half the actual value, or $2.5M.

The author of this article is highly misinformed. The assessed value of a property is often well under 50% of the market value.

I know someone who recently bought a place for just over $7.5m, but the assessed value is under $500k. This property does not have any abatements.

The exact tax rules are somewhat complicated and involve the interaction between rules on assessment ratios, caps on assessed value increases, fair market value models, transitional assessed values, tax rates, abatements, and probably a few other things that I missed.

Author here. I've updated the post to reflect that the assessed value for apartment buildings (more than 3 units) is exactly 45% of market value. It is not "well under" 50% for any standard apartment building... it is exactly 45% by law.

More info: http://www1.nyc.gov/site/finance/taxes/property-determining-...

> Author here. I've updated the post to reflect that the assessed value for apartment buildings (more than 3 units) is exactly 45% of market value. It is not "well under" 50% for any standard apartment building... it is exactly 45% by law.

This is still not completely accurate. Read the section about transitional assessed values and maximum assessed value increases.

It looks like most private residencies have an assessed value of 6%, not 45%

Tax Class: Property in NYC is divided into 4 classes:

Class 1: Most residential property of up to three units (family homes and small stores or offices with one or two apartments attached), and most condominiums that are not more than three stories. Class 2: All other property that is not in Class 1 and is primarily residential (rentals, cooperatives and condominiums). Class 2 includes: Sub-Class 2a (4 - 6 unit rental building); Sub-Class 2b (7 - 10 unit rental building); Sub-Class 2c (2 - 10 unit cooperative or condominium); and Class 2 (11 units or more). Class 3: Most utility property. Class 4: All commercial and industrial properties, such as office, retail, factory buildings and all other properties not included in tax classes 1, 2 or 3.

https://www1.nyc.gov/site/finance/taxes/definitions-of-prope...

What makes you think that most private residences in NYC are in buildings with up to three units?

At least in my experience, the assessed values for 4+ unit buildings tend to be substantially lower than 45% of true market value.

Property tax rates in NYC are actually not too terrible. I've owned homes in NYC as well as northern NJ, and also recently spent a lot of time looking at condos in the NYC area. Tax rates in northern NJ are pretty much always higher than NYC -- NJ is known as one of the states with highest property tax rates. Yet, typical property tax bill for a condo in northern NJ amounts to around 0.8-1.2%/year of the true market value of a property.

In NYC it'll usually be under 1% of true market value for a 4+ unit building, even with no abatement. And for a 1-3 unit building it's a tiny fraction of this. Also consider that property tax payments are tax-deductible federally... and that property value here is rising rapidly, so the value of your investment is increasing by a dollar amount that may exceed the cost of taxes + maintenance/common charges + mortgage.

Sites like StreetEasy are very helpful for seeing the tax rates for homes on the market -- I've personally never seen any with rates nearly as high as suggested in your article. You can also look at quarterly reports from major brokerages to get a good sense of cost per square foot of condos and coops in various neighborhoods, and see how quickly they are rising in recent years.

Why don't they just assess it accurately and lower the tax rate to a normal amount, making it more transparent and predictable? It seems owners are at the mercy of the assessed value, which the city could crank up arbitrarily?

Well, the assessment in NYC, unlike other places is actually pretty predictable and transparent, but not simple.

If you are Class 1, it is 6% of FMV If you are Class 2+ it is 45% of FMV

https://www1.nyc.gov/site/finance/taxes/definitions-of-prope...

Except the FMV of condo and condominium units aren't actually fair market values. Instead they are based on a model designed to figure out what income the building would produce if it were a rental building.

And that's before taking abatements into account. The system overall is not very transparent.

Right, so you get an effective rate of 1.2% of FMV for class 1, 5.8% of FMV for class 2. So the rate is just a bit higher than California for class 1, which might explain why brownstones are so expensive in NYC relative to larger buildings.

The annual rise in assessments is limited by statute.

"Let's take a pretty typical example"

posts a "this guy I know" anecdote

You can do better than that.

You can also look up the assessed value of any building in NYC. If you doubt the numbers, go and look: http://webapps.nyc.gov:8084/CICS/fin1/find001i

Wow, this is awesome! I rent an apt in a brownstone. The brownstone up the street sold recently for $3.4MM. The documents you linked show the annual taxes at $8,700 = 12.5% * $67,000 (Billable assessed value). The document says the estimated value is just under $1,000,000.

$8,000/year doesn't seem outrageous for a $1mm property with rental income, especially given that it's estimated value is about 2/3rds under what it should be.

I have edited my comment per your advice. The intent was to clarify that the property in question does not have any abatements in place.

Including the Cooperative and Condominium Tax Abatement? http://www1.nyc.gov/site/finance/benefits/landlords-coop-con...

Yes.

Note California Property Taxes are abnormally low due to Prop 13.

More importantly there seems to be a disconnect on the rate here and the way assessesd taxable values get calculated here

https://www1.nyc.gov/site/finance/taxes/property-calculating...

In general it looks like a standard Class 1 home gets an assessed value of 6% of market value, some classes end up at 45% market value. My quick read says anything higher then 3 stories would be at the 45% rate which seems like most of Manhattan living?

According to that page a home with a value of $450,000 ends up with a tax of $4,705.88 which is about %1.

That being said the calculation is complex and I don't completely grok it.

Class 1 properties (residential properties with 1-3 units) pay considerably lower rates than Class 2 properties (all other residential properties). Which doesn't make a whole lot of sense, because the poorest people in the city live in big apartment buildings and many of the wealthiest people in the city live in single family town homes. Of the wealthiest people that don't live in single family homes, many live in new construction trophy condos that have multi-decade tax abatements. Even when they come out of tax abatement status, the law requires fair market value for condo/co-op buildings to be calculated by finding a comparable rental building which is impossible for the high end of the market.

Almost every aspect of the NYC property tax regime is regressive. We also have a progressive income tax and a regressive sales tax. I wonder whether or not the system as a whole is progressive or regressive.

> the poorest people in the city live in big apartment buildings

The poorest people live in rent regulated or subsidized housing so this discussion is not relevant to their situation.

> Which doesn't make a whole lot of sense, because the poorest people in the city live in big apartment buildings and many of the wealthiest people in the city live in single family town homes.

My experience is that the wealthy in NY prefer apartment buildings to townhouses.

More importantly the poorest people aren't buying - they're renting so the whole property tax issue is moot.

The cost of property taxes gets reflected in the market prices of rents.

Feel free to let Mike Bloomberg know he is doing it wrong.

I never said that he's doing anything wrong.

The classes are broken down here:

https://www1.nyc.gov/site/finance/taxes/property-determining...

Class 2:

"Residential property with more than 3 units including cooperatives and condominiums."

Property taxes don't affect your rent by forcing your landlord to increase prices. Your landlord can only increase prices if someone is willing to pay that increased price. Property tax rates don't affect people's ability to pay rent.

Property taxes do affect how profitable it is to build more homes. The higher the taxes, the fewer homes will be built. That's what leads to higher rent as demand increases. To avoid that effect, jurisdictions can try to tax just the value of the land rather than the value of the homes built.

http://www.economist.com/blogs/economist-explains/2014/11/ec...

This doesn't seem right to me. I own an apartment in a six story co-op in NYC and pay < 1% of the market value in property tax every year.

Not sure where the discrepancy comes in though. According to this site, the effective property tax rate in NYC is much lower than listed in the article: https://smartasset.com/taxes/new-york-property-tax-calculato...

There are also a lot of tax credit programs that the article does not mention: https://www.tax.ny.gov/pit/property/exemption/index.htm

My property is my primary residence, I don't rent it out, so maybe that explains the discrepancy? But I find it difficult to believe that if there is that much of a difference that landlords are making any profit at all, and I'm quite certain they're not doing it out of the kindness of their hearts :)

"In the very residential and fairly affordable (for Manhattan) East Village, a pre-war, 5-story, apartment building with 15 1-bedroom units and a storefront may have a market value of about $5M. [...] You might end up with an assessed value of half the actual value, or $2.5M. That building would likely be subject to the Class 2 tax rate of 12.9%, meaning $322,500 in taxes every year. A typical apartment in these buildings may be $2,500 monthly, and a typical storefront may be $10,000 monthly, making annual rent revenue $570,000. In this scenario, 56.6% of your rent money goes to the city in taxes, and that’s in addition to the NYC income tax of up to 3.876%, NYS income tax of up to 8.82%, sales tax on everything you buy of 8.875%, and other hidden taxes like the MTA tax on every taxi ride you take."

Holy shit. That's insane. That should be criminal.

Why would it be criminal? The general principle of high taxes in an extremely dense urban area seems fine. All the services and infrastructure cost quite a lot.

Just the opposite -- they cost more in absolute terms, but dense urban infra costs less per person or per square mile and should only weakly increase with the property values (due to the labor costs increasing slightly with costs of living).

Imagine:

- The cost of running a pipe to 200 families in one building vs to 200 detached homes

- The cost of hauling away 200 people's trash from one building vs to each of 200 buildings.

- Having a dedicated full time road repair crew vs hiring out a contractor sporadically.

- Dispatching enough patrol officers to have line-of-sight to every outside public place in a 200-home person neighborhood, vs the block outside the 200-person building.

And so on. That's why legit environmentalists (like the national Sierra Club) strongly favor urban over suburban growth.

That's the theory. I'm not sure a look at per capita cost in city budgets supports the claim.

But cities also provide an multiplier to GDP per capita. Which makes it a tricky equation to balance.

But are the costs in-line with what they should be? I'd think that suburban neighborhoods would require even more infrastructure (more pipes, more roads, more power poles), yet they don't seem to suffer the same high tax rates.

I don't think the average person should be giving well more than 50% of their paycheck to Uncle Sam. Which a typical worker in Manhattan easily can be. (rental property tax + federal income + state income + city income + sales tax easily tops 50% for someone making median NYC income).

It's not actually criminal, obviously. But it should be. Local politicians stealing from their constituents.

Author here. That's the kicker: it's not like we don't have to pay for out subway rides. It's not like the bridge tolls and gas prices (which are affected by tax rates) are not astronomical if you drive. And as mentioned, a transit surcharge is applied to taxi rides.

It truly begs the question: what are we getting for our taxes?

> are not astronomical if you drive.

driving in the city adds an enormous cost to the city overall. road wear, traffic signals, air and noise pollution, decreased mobility of cabs, trucks, and emergency vehicles due to traffic jams, crashes and bike/pedestrian injuries, etc. I drive as well but it's entirely fair that drivers should have an increased tax burden in dense urban areas.

> It truly begs the question: what are we getting for our taxes?

thankfully you don't need to beg at all, a complete and accurate answer to this question is available to you: http://www1.nyc.gov/site/omb/publications/finplan06-16.page

> It truly begs the question: what are we getting for our taxes?

http://www1.nyc.gov/site/omb/publications/finplan06-16.page

let me know when you spot that government that doesn't "need" more money.

Thankfully, none of those numbers match reality.

Can you provide some numbers that do match reality? I'm really curious how this works out because the tax rates are an order of magnitude higher than elsewhere. Either the assessed values are an order of magnitude lower, or there's a tremendous amount of grift that leaves NYC public schools in poor conditions despite huge amounts of tax revenue.

Incredibly, they may be closer to reality than I thought. All buildings with more than 3 units (Class 2) are assessed at 45% of market value.

https://www1.nyc.gov/site/finance/taxes/property-determining...

Author here. The income tax rates reflect the highest brackets, so if you are not the 1%, you will be paying somewhat less. Regarding sales and property taxes, unfortunately the 99% is indeed paying those rates (with an exception if you live in a building with less than 3 units).

My apologies. You're right.

The NYC Hotel industry also has an unusual alliance between the hoteliers and the unions.

In places like San Francisco you regularly see strikes outside Hotels where people are chanting "Don't check in, check out!"

In NYC business is good enough that the hoteliers (Republicans) and the unions (Democrats) agree to get along so politically the opposition to things like AirBNB is united.

Interesting angle. Funding for prop F in SF (which would have placed tighter restrictions on airbnb) largely came from the hotel unions and affordable housing advocates, not the hoteliers themselves.

http://www.businessinsider.com/airbnb-spends-8-million-again...

I wonder if these are somehow connected, interesting to think about. It might also explain the huge gap in funding on the measure.

It'd be interesting to see if this were the case for a similar measure in NYC.

My rental agreement (in a 4-storey apartment building) in SF forbids me from subletting (without consent), or from having overnight guests for more than N days a year. Are most other rental agreements more lax or do many Airbnb hosts operate in violation of their contracts?

Theoretically, this shouldn't affect rental prices.

Demand is dictated by the number/wealth/desperation of people wanting to rent in NY. Supply is more-or-less constant (except for new-build, which is excluded from this).

So this doesn't affect rental prices, just moves money from the landlord's pocket into the city government. Sounds like a good idea to me.

That might be true if they weren't distortionary. But because they are dramatically different for renters and owners they distort behavior and so would be expected to affect rental prices.

Author here. There is indeed a supply and demand equation here, because demand is not constant. Market forces would drop rents if taxes dropped.

Just for laughs, you can find information on any Class 2 building in New York City here:

https://www1.nyc.gov/assets/finance/jump/property-data-maps/...

and then look up the tax bill for it here:

http://www.propertyshark.com/mason/info/Property-Taxes/NY/Ne...

It doesn't take too much poking around to see that this guy has overstated his case.

(P.S., though I would agree that generous abatements for the benefit of condos for wealthy investors is rather unfair)

This is some seriously lax research. Property tax rates in New York City are very complicated. If the phrase 'tax class' doesn't come into the article you can safely discard it as nonsense.

http://newyorkyimby.com/2015/06/why-new-yorks-property-taxes...

http://commongroundnyc.org/nicemess.htm

> If the phrase 'tax class' doesn't come into the article you can safely discard it as nonsense.

Did you even read the article? Direct quote:

"That building would likely be subject to the Class 2 tax rate"

And the article even links directly to the class breakdowns on the government website.

That was added after the negative reaction in HN & Reddit responses. The author was basically scrambling in real time to address the comments here. Not exactly a sign they are an expert on the matter. My comment was written before the article added that information and I stand by it.

> That was added after the negative reaction in HN & Reddit responses.

It was there before I posted it to HN, although the author did modify the article after it was posted.

Author here. All buildings that are more than 3 units are tax class 2, which are taxed at 12.9% of assessed value, which is 45% of actual value, for an effective tax rate of 5.8%. Again, this is about 4x what other cities pay.

So why are the taxes so high?

I can understand that having a higher population density would require potentially more resources, but I wouldn't think that would be a linear relationship. For example, an apartment building with 15 people in it does require more in terms of water and sewage treatment, but it doesn't require a 15x increase in roads when compared to building just a single house.

I base this on no knowledge other than basic facts about human pyschology:

It's because they can.

> If you like the thrill of gunshots on your way to work, Chicago’s tax rate is 1.86%.

For the record I live in NYC and there were gunshots Sunday morning a block from my house

And gun violence is quite rare in the great majority of neighborhoods middle-class people inhabit in Chicago. An ignorant pointless dig like this is not building much authorial credibility.

Author here. The murder rate in Chicago is about 3.5x that of NYC...

https://en.wikipedia.org/wiki/List_of_United_States_cities_b...

Anyway, the point was not which city was safer, but that compared to virtually any major city in the U.S., New York's tax rates are several times higher.

You're casually implying that the tradeoff for the more affordable rent in Chicago is a greater likelihood of being the victim of gun violence. While it is a major problem, that's not the nature of gun violence here. It is highly localized to communities below the poverty level. If you're willing to casually and irresponsibly reduce the Chicago gun violence issue to a flip claim like this, then I have little faith in your ability to faithfully summarize the taxation situation (which seems to be a correct deduction based on the holes everyone is pointing out here.)

Have you been to San Francisco?

Without reading the article, isn't the answer always supply and demand?

Ha, you should've read the article.

Reading is your friend. 56% of the income generated from renting in an old building goes to taxes. That's scary high.

In this case not reading was the correct call, since this article just made a bunch of people on HN less informed. I look forward to the echoes of this showing up in every future HN thread on housing prices. I should save the debunkers for future reference.

Or, conversely, its better that the city is extracting those taxes for services instead of it being straight profit for landlords. Lowering taxes would not lower rent charged, it'd just be more money in the pocket of landlords.

if taxes were lower, it's possible landlords would rent for less to make the same marginal dollar.

Article blames high city taxes. I always thought it was that rent is price controlled, resulting in undersupply.

This is certainly another issue. There are many reasons why NYC rent is so high. But >50% of your rent going to property taxes may be the #1 most significant.

In this case, it's supply, demand, and tax (abatements).

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