Why Billionaires Don't Pay Property Taxes in New York
citylab.com
citylab.com
However, primary occupancy in the major properties under discussion here (the three along 57th plus the Time Warner center and a few others) is incredibly low, and basically speaks to high-end real estate bubble. These are high-visibility properties that people think of as good investments, whether because they can be re-sold later for similar valuations or because they're hedges against russians or chinese having to leave their own countries for a variety of reasons.
In that regard, it's totally worth noting that NYC does a much better job than most cities at permitting the construction of new luxury units that keep billionaires from pricing everyone else out of the market while extracting concessions like low- and moderate-income housing or the building of new parks. Imagine if each of the 104 billionaires who bought at 432 park ave had bought their own greenwich village townhouse instead. Supply would be as short as it is in san francisco.
That said, we can extract a lot more from builders and billionaires along the way, and we should. NYC still needs more housing -- the small proportion of rent regulated housing that accompanies these buildings remains insufficient to build the quantity of housing needed to avoid pricing actual new yorkers out, and to keep offering the services the city deserves.
First, I agree 421a is ludicrous, which is why I don't see why you credit NYC for "extracting concessions like low and moderate-income housing". 421a and similar programs trade billions of dollars in tax revenue that could be spent on everyone for hundreds of thousands of dollars in rental subsidies handed out to a few lucky lottery winners. That is terrible public policy. A park or subway station improvement is a little closer call, but cash ought to be the gold standard.
Second, I'm not sure I care whether billionaires buy castle in the sky in midtown or townhouses in Greenwich Village. I wasn't going to be able to afford the townhouses anyway. It seems like the people most concerned about billionaires bidding up property are the centimillionaires being priced out. 100 units, even extremely large units, are a drop in the bucket for NYC. The knock-on effects are just not that large out in the places where the middle and lower classes live.
Finally, in terms of extracting more, I think the in-kind programs are both inefficient and a massive opportunity for corruption. I'd much rather see all the special deals -- parks, affordable housing, etc. eliminated and property taxes that reflect reality imposed, with perhaps a small pied-à-terre differential. The billions of dollars of missing tax revenue would be a lot more valuable to NYC than a few more housing lotteries or a small park, if for no other reason than you can subsidize rentals with cash but you can't fix potholes with subsidized rentals.
I agree that we don't do enough -- that's why I said that twice. I was simply adding that there is some value to construction of luxury property buildings, and perhaps insinuating that if we went so far on taxes that none of these got built, we would be worse off. I don't know where the actual trade off is -- again, we're well beyond it with 421a.
Sorry but what's wrong with that? We have land tax for exactly the same reason. If someone is willing to own the expensive apartments (and the expensive land that they build upon) and pay the taxes, why is that a problem?
I guess I don't see how gentrification is a problem at all. If Manhattan is expensive, people should move out. This is a genuine question. Why should they live there if they can't afford to live there? Is it a good use of public resources (policy makers' time, potential tax income etc)? Honest question.
The second part of this is that it costs a lot of money for these people to move/be without income. So for some, they might just be too poor to move, and suffer with diminishing disposable income as the price of everything else around them rises.
I think the core of the argument is that it's not like these rich people came into a barren land and built giant apartments. There are many people in NYC that simply live there, and why let these billionaires come in and make everything more expensive?
I think that's the crux of the counter-argument. I think that a combination of proper tax brackets, loose zoning regulation allowing for high-density housing + commercial mixes, and primary-residence rules can solve the problem.
I think the central moral argument is that having giant empty houses in the middle of a city with a community trying to do otherwise isn't exactly useful for society as a whole (see Detroit) , so we should disincentive it as much as possible.
Raise property taxes if you don't want property to be left unoccupied.
I sympathize with people who are already living there but it just doesn't make any economic sense to give tax breaks to benefit a small population that's already living there. There is no benefit to the population at large to prevent an incumbent population from getting priced out.
The goal should be to increase the supply of cheaper housing and make it abundant. I doubt it is possible in Manhattan today. Why not do it somewhere close by where they are not likely to be priced out? Instead, we build things like the east rover ferry which is clearly intended to raise the rent in apartment complexes midtown and first avenue...
I doubt the people already living there is small. Most people don't really move out of cities they grew up or went to college in. So we're talking about a substantial chunk of the population. There are cultural arguments for protecting the incumbent population.
Like I said, that's the counterargument as has been presented to me. It's not black and white (obviously). I think the proper solution is stronger transportation and making other areas more livable. But there's a strong argument for making real estate not become just an investment vehicle (literally rent seeking!), and make it more about actually housing people.
Yes, that's what everyone is saying.
1. An increase in their commutes, causing a decrease in wealth. 2. A decrease in their effective wage per hour spent "at" work (I include commute time here because it's time committed to employment), reducing their financial productivity. 3. A decrease in time spent with their families, which research shows negatively affects piles of aspects of family life and child development. Reductions in parental content affect emotional health, reduce academic performance, increase likelihood to make poor decisions vis a vis the law...
Housing price inflation depresses factors for success in families that can't keep up. A shiny bus stop or subway station is a lot less valuable to the community than a janitor spending an extra hour with her/his family at the end of the day.
Do I have the right to live somewhere forever if I rent an apartment?
That seems like a no-brainer to me. About the only argument in this thread against it is from zaroth (https://news.ycombinator.com/item?id=9534802). He says that these buildings wouldn't be built without the tax break. I'd be willing to consider the possibility, but I'm unconvinced at this point.
Often it's how the situation got there in the first place. For example, in one suburb in my city a few landlords who owned apartments started renting to "undesirables" - illegal aliens, prostitutes and known drug dealers. This brought all kinds of problems because the area became known as a "safe haven" for petty criminals.
This drove down the market values of all the properties in the area, which is of course what these landlords wanted. After people started moving out they started purchasing properties and land all over the area and when they were comfortable enough with what they had, they enlisted the help of the police to evict the undesirables (and thereafter push up rent). With more properties under their belt, they had more say in the rate payers association, which meant they had more power to vote on things that worked in their favour rather than the original residents. I'm sure you can see where things went from there.
The other side of things is also what gentrification usually implies - destruction of communities. But let's leave that for another discussion...
- Unscrupulous landlords intentionally drive down the price of property (this is NOT "low-income housing")
- They purchase the under-valued properties in bulk
- They increase rentals, prices and use power gained from the rate-payers association to force poorer people out, and to make it harder for them to move in
Furthermore, you can live on an expensive property and not be wealthy. That's not the same as buying a cheap property. Case-in-point: Families that have lived on the outer-skirts of a growing city for several generations. When they moved in the properties were relatively cheap, and rent was low. As the city grew, the land value increased. This does not automatically make them wealthy, and the increased prices does not automatically mean they will want to sell their properties or move out.
Is the point of a city to relentlessly grow and attract money, or to provide a good place to live for its residents?
The effect is to redistribute a small quantity of housing to the lucky poor--and I mean "lucky" because the waiting list for affordable housing in NYC is years long--without voters really feeling like their wealth is being redistributed. But I live here and $3000 is redistributed from my bank account every month; unfortunately, it is redistributed to a rich landlord rather than the deserving.
As someone living in Pittsburgh, $3000 a month in rent strikes me as ridiculous.
For that kind of money, one could have a McMansion in an upscale suburb 20-30 minutes away from downtown.
I am pretty sure sixteen years before that people were also saying it.
Sweetheart deals for luxury housing and rent controlled housing mean that developers are going to put more time, energy and money into bringing upper income housing into NYC while the middle and lower income people are left with fewer options.
Because of the geography and municipal structure of the area, middle and upper-middle income housing is doing quite well here.
Just because we can explain why it happens doesn't make those prices any less exorbitant.
Pricing is exorbitant in other facets of life in NYC as well but that is a separate discussion.
It's not like SF is crowded, it's just that we've built really bad buildings for holding a lot of people.
Can you point out a city that built up and is affordable (with a good economy also)?
From personal experience, at least, supply is _not_ an issue in Tokyo. You can go to a real estate agent and go see like 4 or 5 places in a day and take it almost immediately.
This is compared to (second hand stories) of apartments in Paris where you have 10 people show up to look at 1 apartment and it's a crapshoot whether you can get it.
Here is a random 10-year old condo for $255k: http://www.trulia.com/property/3201711637-222-N-Columbus-Dr-...
Here is an older, further-out one for less than half that: http://www.trulia.com/property/3193730688-3950-N-Lake-Shore-... (still in a decent neighborhood and near a 24-hour rapid transit line)
Here is a large 3-bedroom for $485,000: http://www.trulia.com/property/3197384352-212-W-Washington-S...
Here is a large 3-bedroom, futher out, for $450k in a newly-built brick walkup: http://www.trulia.com/property/3027918821-2550-W-Logan-Blvd-...
There are a lot of variations on similar themes.
Chicago's economy isn't San Francisco's, or New York's, and it doesn't have many exciting software jobs or world-class outdoor recreation. But it is still a big city with big-city opportunities and many well-paying jobs. And it clearly demonstrates that a sufficient housing stock guarantees no building type, even skyscrapers, are inherently tied to high prices. Just as San Francisco's predicament demonstrates that keeping old buildings in place doesn't hold down prices.
So? I don't care if you bought it to live in, to invest in, or to farm pigs in. It should be taxed according to the actual market value, which pretty much means taxed based on the price you paid for it (at least in the year you bought it).
NYC builds fewer units per resident than any city in the US except probably SF. It just looks impressive because each new building adds a mark to the most visible part of the skyline, but when you consider the volume of units across NYC it's really, really low.
Prices aren't at SF level, but they are still getting unreasonably high.
A lot of the content of the article is FUD. There is no relationship between income and property tax levy -- it's based on the adjusted value of the property. In the case of an apartment building, the value is easily computed as a factor of the revenue generated. Obviously, the process in NY is prone to corruption, as the leaders of both houses of the state legislature under Federal investigation for related issues. There are lots of stakeholders here with different interests -- unions want construction jobs, lawyers get to bill for title and other work, etc.
What has changed during the last 15 years is the importance of property tax in NYC. Unlike the rest of the state, other revenue sources were more prominent. Now, in addition to high sales tax, city income tax, special transit payroll tax, and other costs associated with NYC, you get high property taxes too.
All the more reason to tax them. When I bought my house, its assessed value was the price I paid for it. Why not here?
However the tax rates are much higher areas using the 6% method versus the 100% method. For example in NYC the tax rate is 19.157% while in San Francisco is 1.1743%. If you do the math the tax rate on market value is about the same. 6% * 19.157% = 1.149% in NYC versus 1.1743% in SF. In most places it is around 1% but can be over 2% in place like New Jersey, Illinois or upstate New York which unlike NYC relies more on property taxes.
None of this says anything about the NYC system for condos (class 2) that the article talks about but is often a source of confusion when comparing areas that use different systems.
http://www1.nyc.gov/assets/finance/downloads/pdf/brochures/c...
http://www.socketsite.com/archives/2014/09/san-francisco-pro...
EDIT: Here's a good recent review of residential real estate taxes across the US (290kb pdf):
http://www.brookings.edu/~/media/research/files/papers/2013/...
This was very confusing to me when I lived in New York. The property tax rate is terrifying (19 percent annually???), but then you realize that the basis for each property is reduced by a fudge factor such that the effective rate is in the same range that it is in other places.
I suspect that the reason that they do this is to stop people from hassling the city constantly about their assessment. In places like MA, where they make an honest attempt to keep assessments close to 1:1 on value (mine changed annually in the time that I owned the house, often going DOWN -- this was 2007-2010), people are constantly appealing their valuations.
The only relevant distinction would be if tax or assessment were curved as a function of actual value.
If you used the last sale price and didn't adjust, people who bought 30 years ago would benefit unfairly. If you used the sale price and adjust annually, how do you do it? By inflation, by average country/state/city/neighborhood increase in sale prices, etc.? Each has problems. If you hire people to assess the current market value, they can be bribed or make mistakes.
I really like property taxes as a way to fund government, but determining the value of something like a house/condo is actually a bit tricky.
You use square footage of livable area and land. The rates for each (which are different) are the average sale price of all houses in the neighborhood per square foot.
The only hard part is determining neighborhoods. Sure some houses are extra fancy and worth more, but the difference is not large enough to worry about since fancy houses also tend to be larger.
If you choose a whole year, your assessments will lag badly in a fast moving market. If you choose a shorter time period, you risk the small number of sales making the measure a noisy one. I suspect the whole year basis is a better balance.
Then of course, there's the "is a garage livable area? is it land? is it neither?" "is a basement livable area?" "what makes an attic livable area vs storage?" "what about porches? patios? sheds? gazebos?"
Livable area is already very well defined in law, so no need to do it again. Every real estate listing has this number. There's even an ANSI standard Z765-2003 for it.
Allow the government to set the rate as they see fit (with all the normal controls of an iterative democratic/representative process), but the assessed value is also a bid of sorts.
Of course there are flaws: an assessment shouldn't vary based on how willing someone is to move, it's still easy to under-assess by a little (but then that drives the rate higher to make the budget), and I'm still a little disquieted by the idea that the control against under-assessing so undermines property rights.
I think that Cambridge (MA) gets this reasonably right. My assessments have tracked the overall market in my area (at least loosely). They might be 10-20% off in a rising market, but they're not 50% off.
The problem lies in the nature of politicians... Reassessments upset people whose assessments go up, so the big players lobby to defer the re-basing. Or in the case of California, you never revisit until the property changes hands.
In a metrics-based way (#BR, #Baths, square footage)? In an aggregate neighborhood-based way (all 02138 is up 3% this year)? Via drive-by appraisals? Via invasive inside the house appraisals or "broker price opinions"? (The last clause would seem to have significant Fourth Amendment concerns.)
That's exactly how mortgage underwriting works. It's not 100% accurate, but there is an appeals process to address inequities.
This is pretty much the answer. Everyone who argues that it's impossible to figure out a fair value for the property without a change in ownership has to face the fact that lenders do it on demand and (admittedly only theoretically at certain points in recent history) are incentivized to get it right because that's the final method available to them to get their money back if a loan goes south.
2. That process is labor-intensive and therefore expensive. Typically, the borrower is on the hook for the approximately $500-1000 cost of the appraisal. (If you don't see a line item charge, it's safe to assume that was buried in the discount rate.) On the high side of that range, appraisal costs would be > 10% of the tax collected if you appraised annually. Presumably, doing every property in the municipality at one time would make this process more efficient, but it's still a labor intensive and invasive process. The city's largest commercial landlord, Boston Properties, pays about 4% of the total tax revenue in Cambridge. This process could literally siphon more money out of the system than all Boston Properties buildings pay.
Allowing a mandated and periodic governmental inspection of my property to determine its value and funding that appraisal work present significant hurdles to universal application. In this case, I think that approximately wrong is better than precisely correct.
But that's all irrelevant and somehow the article is overblown FUD? Is the point that all the lawyers and construction jobs outweigh taxes? I think the fundamental argument is one of fairness, the people who benefit the most from a wonderful city should pay their share to maintain and support it.
If that's true, then why should they pay higher taxes? If they're not actually living in the community, they're not using services. Seems fair.
Also note that of course the owners are deriving a great deal of benefit from city services, both directly in that they are counting on the NYPD and FDNY to keep their property safe, and indirectly insofar as the whole reason these apartments are valuable in the first place is that NYC is a world-class city where many people desire to live.
I'm building a tower. The sweet tax situation means I can sell some extra units as tax shelters, so I slap on a couple more floors. Is that then space that would've been occupied by others?
Meanwhile, since there are people willing to pay to simply own portions of that floor, he builds it. In the future, if there is a high enough demand for that particular space, the owners of those portions of the floors could sell the floors. For those owners, they have effectively used the space on the extra floors as a property investment. However, the floors are still available in use when the time is necessary.
Comparatively, if those floors weren't built, no one would have made use of that space. If the building wasn't designed to accommodate future expansion vertically (is that even possible at that scale), then that space would have gone unused even when a demand for that space finally exists.
Thus, no one is being deprived of space because those extra floors were built. If at all, that space will be more likely to be utilized in the future, since it will have been built and ready for sale.
That space is being used to drive up the prices of the space actually being used.
1. You do not know that.
2. Boo hoo. He wouldn't have built the building, but someone else would have.
For better or worse, building rights are extremely limited. Developers do everything they can to get more building rights. I can't think of any recent building that went up and was limited by demand for space and not by what the building code would allow them to build.
You can assume that given a different set of incentives, the buildings going up would have a different mix of units.
In that case, what does the height of the building matter?
To me this illustrates perfectly why it's not unfair that the people in a shorter building taking up the same surface area are taxed at a higher rate.
Taxing property values much like sales taxes is already regressive as % of income spent on housing decreases as income increases. EX: A firefighter might spend 45% of their income on housing costs where many billionaires spend less than 1% of their income on housing costs.
PS: Though this does bring up the question of what bill Gates’s hypothetical 60 billion dollar house might look like. 15 one world trade centers lined up in a row? How about 1/2 of the ISS?
Which is the reason some people in San Francisco are skeptical about the ability of increased housing supply to contain or decrease housing prices. Adding supply that ends up being unoccupied because it's owned by absent uber-rich does little or nothing to decrease housing prices for locals. And if you demolish existing housing that is occupied by locals and replace it with housing that becomes pied-à-terres for the absent wealthy, you can, paradoxically, actually increase the price of housing for locals by adding new housing.
Of course, never building anything (like David Campos apparently wants) isn't the solution. But if one wants to decreasing housing prices for locals by adding supply, one needs to ensure that the housing is actually used by locals. Which I don't think anyone knows how to do.
People are skeptical because they don't understand basic economics: see http://www.amazon.com/Rent-Too-Damn-High-Matters-ebook/dp/B0... or http://www.amazon.com/Gated-City-Kindle-Single-ebook/dp/B005.... When building in desirable neighborhoods is exceedingly difficult developers target very high-end housing. When building policies are reasonable developers target wider swaths of the market.
The only guarantee one has is that developers will build what generates the most profit for them. That's basic economics. If the most profit is found in housing for locals, then locals get housing. If it's in pied-à-terres, then they don't.
Even if some new luxury apartments are pied-à-terres which would not be in SF in the absence of new construction, if some are actually occupied then rents for the city in general will also benefit. (New downtown high-rises with super-fancy penthouses can easily have many real residents on the lower floors.)
It only seems that way sometimes in SF because there is literal decades of pent-up demand that needs to be satisfied, resulting in people willing to pay quite high prices.
Neither is the supply of land.
The question is, can San Francisco build enough to satisfy this demand, without replacing so much of the existing housing stock that San Francisco doesn't look like San Francisco any more? I don't know. And maybe it's not important. Cities do evolve, after all.
But I do think the question needs to be asked, and debated.
The answer is: yes. The heart of San Francisco lives not in a brick or a stone or a board, but in the hearts of San Franciscans. Gold in peace, iron in war.
Or they've learned that simple models don't always capture reality.
> When building policies are reasonable developers target wider swaths of the market.
Do the sources you've cited here or any others you're aware of present a reasonable number of situations where this has happened and led to a decrease in housing prices?
Because I've never been able to find any kind of decrease independent of a demand collapse.
2) Buying an investment home in SF is basically a bet that the authorities will continue to keep housing supply growing much slower than demand, causing prices to rise. Speculation just causes current prices to better match expected future prices.
Do they really not? Seems pretty simple to just make regular small family apartments. If the apartment you're building looks like this: http://cdn.theatlantic.com/assets/media/img/posts/2015/04/On...
then it's probably going to attract the uber-rich. Why not just make a bunch of boring utilitarian apartments (not crappy ones, just high bang for the buck) and set restrictions on the scope of improvements allowed?
Building it is an excellent first step. Housing that is never built will with 100% certainty not actually be used by locals.
For example, say that a developer tore down housing for 1,000 people on some property, and then replaced it with housing for 3,000 people. That adds capacity for 2,000 people. But if 950 people were domiciled at the old property, but only 750 people are domiciled at the new property, then it's actually a net decrease in supply for people who reside in San Francisco. If the original property was old and run-down (which is what usually gets replaced in these situations), and the new property consists of units that have great appeal to wealthy people looking for a San Francisco pied-à-terre, then a situation like this is certainly possible.
There is a limited number of wealthy people looking for a San Francisco pied-à-terre, and that is a market that can be exhausted without driving all other residents out. At which point standard market forces mean construction for the less wealthy will occur.
The number of wealthy people looking for a pied-à-terre in SF is not a fixed quantity. It seems to me that that number has grown significantly compared to, say, 10 years ago. And that that's mostly due to the increased prestige of the city (as perceived by that wealthy set). That prestige comes from economic growth, but also from a sense of how friendly the city is to pied-à-terres for wealthy people. So building more of them might just end up increasing the demand for them.
Sure, the process won't go on literally forever until the city is nothing but vacant luxury condos, but the total demand after that compounding effect has gone on a while may be much more than it appeared at first.
Thankfully, this not-fixed number is also not infinite. Just as the housing market also does not need to operate over a fixed quantity of housing. Building more increases that not-fixed quantity so that the not-fixed quantity of demand might be met.
When you have an economic boom, you need to grow your infrastructure to match. Not sit around bemoaning that that might enable future growth that will, to a great degree, happen even if you don't grow infrastructure.
Look no further than the current housing crisis - accurately predicted in 2000 - to see the results of the notion that growing infrastructure is bad because it encourages use of infrastructure.
There are exactly zero tricky debate tactics going on here.
They are money laundering/tax shelter vehicles for the uber-rich, especially foreigners
"For instance, when former Citigroup Inc. Chairman Sanford Weill sold that 6,744-square-foot condo at 15 Central Park West for $88 million, the city valued it at only $2.8 million. The entire 201-unit building, which is also home to rock musician Sting and hedge fund manager Daniel Loeb, was valued at $242.6 million."
source: http://www.bloomberg.com/news/articles/2014-03-10/nyc-proper...
Man, talk about letting huge amounts of tax revenue walk out the door.
And that fact that when a billionaire leaves their home country, it is often for shady reasons, not innocent enduring persecution or suffering.
When Mayer Bloomberg talked of the ultra-rich moving in, he didn't mean so that the city could literally confiscate their assets, but rather, the city can benefit from the investment that follows. There are great arguments to be had about how much NYC actually benefits from massive infrastructure projects like One57, but the property tax structure is intentional because the city benefits in other ways.
A more interesting analysis would consider the myriad costs and benefits of the construction and upkeep of One57. Obviously there is very significant tax revenue and expenses to the city generated through various channels for a building at that scale. They are not and should not be taxed like single family homes or condos.
They are taxed like condos—they are condos. I think the larger issue in this story is that the tools for assessing tax value are crude and don't allow the city to assert a progressive taxation. The range between 0.017 and 1.7 is large, and the city needs to be able to find a target taxation that draws in revenue without warding off services. There's no reason to believe the limit there is 0.017 percent.
Since the sales price is 6 sigma to the right on the bell curve, it doesn't surprise me at all that the tax rate as a percentage of sales price would be similarly offset to the left. I think it would have made the analysis better to have also ranked the dollar value of tax revenue per dwelling unit, and you would see they are paying an extremely high share under that metric. But then the title of the article would have to be "Why Billionaires Pay the Most Per Capita Property Taxes in New York".
Another way to look at it, is if the tax rate were 1.7% instead of 0.017% then the building could not have been built. If the rate were 0.17% the sales price would have been closer to $10 million than $100 million. I think there is no scenario where the city gets the tower, the condo sells for $100 million, AND the city takes even .17% each year in property taxes.
The article reads like the city paid to build the tower and is giving the units away rent-free. It just seems like such a distorted view of the full macroeconomic impact, when in fact NYC is getting exactly what Bloomberg meant when he said he hoped the billionaires to move in.
That isn't the point I'm making. Ultra-luxe condos are taxed the same way as normal condos are. It's the same mechanism. But the formula is crude and can't anticipate that there might be condo buildings with no comparison in the rental market.
<i>I think it would have made the analysis better to have also ranked the dollar value of tax revenue per dwelling unit</i>
The charts I included do show the dollar value of tax revenue per 10 units that sold for extraordinary prices. Perhaps these dollar values (e.g., $17,000 per year) do seem very high, but that is a matter of perspective. If you are the owner of a $5 million condo, and you pay $17,000 annually in property taxes, it will seem outrageous that the owner of a $100 million condo pays the same. This is why it's important to compare effective property tax rates. Just comparing numbers or digits is meaningless in a discussion about in/equity.
<i>I don't think there is a scenario where the city gets the tower, the condo sells for $100 million, AND the city gets 1.7% each year in property taxes.</i>
Perhaps not. I still think the burden is on the city and state to demonstrate why the inequity is warranted.
well, I wouldn't put it past him.
Offering tax abatements to attract "investment" in a community is like offering ballooning ARMs to attract long-term home ownership: the incentives are set up to cause exactly the opposite of the stated goal.
>As originally designed, the program requires to allocate at least 20 percent of their units to low-income families, in return for tax breaks of up to 80 percent. It's a badly kept secret in Manhattan that the program is often used by luxury developers.
One57 used a popular loophole in the law that allowed the developers to take the tax benefit for the building overlooking the park, but fund the affordable housing units in another location. One57 bought credits or "certificates" that helped fund those affordable housing units in outer bouroughs, according to city records. [0]
This is all part of a misguided housing policy in New York that focuses on "affordable" housing. This results in housing that is below market and a few lucky people that get in. For instance, one new building that got a lot of attention for having a separate door for the subsidized tenants (dubbed the "poor door" by the media) has received 88,000 applications for 55 subsidized units. [1]
In my opinion, if the government wanted to subsidize the less fortunate, they should provide a cash subsidy for the individual to use as see fit. Forcing someone to take the entire value of that subsidy in the form of a housing credit is silly. For example, if you force developers to charge only $1000 for a $5000 apartment, you're essentially transferring $4,000 from landlord to tenant as a housing credit. I would prefer the individual receive $4,000 cash and be able to choose how to spend that amount, or somewhere in-between. I doubt most would use the entirety of that amount on better housing.
[0] http://www.cnbc.com/id/49360274 [1] http://www.nytimes.com/2015/04/21/nyregion/poor-door-buildin...
Because you say so?
Direct cash benefits have one effect, rent regulation has another. It depends on what you are trying to achieve.
I am always perplexed when people talk about NYC housing policy and how it's self-apparently and obviously being done wrong, they invariably fail to note that it's the most desirable and culturally important city in the Western Hemisphere.
> Because you say so?
I'm not the commenter, but I think cash is better precisely because I don't know what would be better for the recipient. It's pretty arrogant to assume that you know what is right for someone. To say that a $4,000 transfer should be used on housing and housing alone is an insult to the person receiving the benefit, as though that person cannot think or make decisions for themselves.
Thus, we can conclude that by the same metric that the most successful civic and urban policies are employed in rural Nebraska and West Texas.
Perhaps that's actually not the best way to measure the success of a city?
> I'm not the commenter, but I think cash is better precisely because I don't know what would be better for the recipient. It's pretty arrogant to assume that you know what is right for someone.
Perhaps. But what if, instead of making a decision based on what's better for some arbitrary recipient, you wanted to make decisions that would increase the likelihood of having a vibrant and diverse urban environment with people that have various economic and cultural roles to play interwoven into the fabric of the city's housing stock. What if you placed stability and continuity as higher values in your trade off calculations than maximizing economic efficiency?
Again, my argument is a plea for empiricism. New York is a staggeringly successful city, one of the world's most desirable and influential places, with an incredible culture of residents. I always wonder if people have actually paused to notice that when they start evaluating housing policy.
I love NY. I choose to live here. I don't like high rent though.
I'm just a little weary of allowing political bodies to determine the right "urban environment" as these same bodies have used their powers for segregation. Sure, diversity sounds good, but it sometimes leaves a bad taste in my mouth. For instance, ~70% of Stuyvesant High School is Asian and admission is based solely on a test. Should Asian's be prevented from attending?
[0] http://static.cdn-seekingalpha.com/uploads/2015/5/11/sauploa... [1] http://seekingalpha.com/article/3167336-houston-wavers-but-t...
http://www.itep.org/pdf/whopaysreport.pdf
To see just how much more difficult they make it for the poor.
Also it isn't the low income who are being taxed to death it is those who "middle class" who are subsidizing everything. Effectively only 50% of those who file taxes actually owe any taxes.
Rent is determined by supply of housing and demand for housing, not taxation. Property owners would eat the cost and the price of properties would probably drop accordingly (higher taxes = a less attractive purchase).
Speaking of Econ 101, when taxes shift the supply curve, what happens next? Some renters are priced out, others get less house for more money. Under no circumstance does some fat-cat middle man reach into their own pocket to help a brother out.
Take an extreme example, if taxes were $5000/mo for a 800 sq ft 1BR then rent for a 1BR would be greater than $5000/mo. There might be very few units renting at that price and home prices would approach zero or could even become significantly negative if owners had no other way to escape the tax bill.
You see this for some properties in Detroit where the tax bill is more of a liability than the house and land are worth so the plot can be purchased for $1 for any sucker who will take it (or is willing to carry to tax liability in the hopes the asset will eventually appreciate beyond the accumulated taxes)
Either people will pay more, in which case landlords will raise their rents until people stop being willing to pay more, or people won't pay more, no matter what the cost to the landlord.
Nowhere in this does the landlord show up with a tax document and say "see folks, now you gotta pay MOAR TAX".
The reasoning is multi-part:
1. It aligns tenant and landords by encouraging renters to vote against property tax increases. Renters can now think whether the services increase is worth the tax increase instead of only worrying about the benefit side as the cost side is 100% someone else problem absent an escalator.
2. It allows landlords to offer their property for rent without including a "holdback" for their guess as to their property tax increase.
Similarly, lowering the tax rate would provide greater profit to landlords, which would cause new entrants to the rental market, leading to greater supply and a lower average cost.
That's just the basic theory of competitive markets, at least as I remember it. It starts with the 'X' shaped chart of supply vs demand which you draw over and over in Microeconomics 101. Macro takes the concepts from Micro and connects the dots to get from increasing taxes -> higher rental prices.
Landlords don't eat tax increases. Anywhere, ever.
This whole "taxes get passed onto the consumers" fallacy is just another bit of anti-tax/anti-gubmint propaganda.
This trickles down to developers not getting the prices they need to get and not building new developments. With constrained supply rents will go up.
The other option is landlords will do the same sort of "decontenting" car companies do in a tight market. They'll cut maintenance staff, paint less, spend less on renovations. Over time your rent will be the same, but the value of what you receive will go down.
The idea that "taxes get passed on to consumers" is not a fallacy - you can see it at work every time taxes go up. Business owners are like anybody else - when their wages get cut they take a look at their options.
This is true in every state that I have lived in. The tax-assessed value is lower than the market value, and the tax rate is a small portion of the tax-assessed value.
The tax-assessed value is lower because the assessors use a historical comparative market analysis, which looks to the past to determine a current price. Free market buyers who assess the property for the purchase of making a purchase offer look at comparative historical values, but they also look to what the future market will be. A rising market will command a higher price than a sinking market. The same is true of the stock markets.
This effect is especially true for unique locations or other outlier properties that can have grossly higher market values than tax-assessed values. I am not surprised then that this is a problem in a place like Manhattan, New York.
Also, some states limit the annual increase of the tax-assessed value. In California it is 1%. If the market increase is 8%, the difference is going to be large quickly.
And if you think New York is bad, take a look in Hong Kong.
> In NYC, Billionaires Pay 1/100th the Average Property-Tax Rate
The biggest beneficiaries of the current system are the property developers. Fairer property taxes on these high end units may mean lower sales prices, and that seems just fine.
One error in the article is the idea that landlords pass through taxes as higher rents. That completely misunderstands landlord psychology. Landlords will charge as high a tent as they can. Tax rates affect the value of the property when sold by reducing the cap rate, they don't affect rents.
Fairness shouldn't impact the requirements for low income units. Those should be traded for the right to build, not for a tax break.
The article suggests the complexity in the laws are based on the difficulties in 1980 of calculating year to year increases in property values. Much more data is available now and lots of work has gone into such algorithms, that should be less of a barrier now. It's probably less important that the algorithm be perfect than that the methodology should be apply equally to everyone.
It may not seem like there's a direct effect because Unit 2 on 123 Main Street is still a rental for the same price after a $50/mo tax increase. But, some other unit ends up being sold to an end-user (or a condo-conversion developer) instead of staying as a rental. Across the body of rentals, I believe that tax increases show up in rent over the long-run. Landlords aren't in the business to give renters breaks. (Nor are they evil Scrooge McDucks; the good ones are just smart businesspeople who can do math and put up with people... :) )
When everyone you know owns 3+ homes and would be able to easily cover any sort of damages that they cause people are much more willing to loan out keys and open their homes, especially when they aren't there.
I'm nowhere near that level of wealth, but I've been more than fortunate to be invited on some trips that follow this pattern. I've even heard from the horses mouth how someone literally spent two years after college traveling across the world, staying in nothing but her parent's friends' apartments/condos/houses with other socialites. You can get real deep into social psychology with this, but the social rules are different for people with such socio-economic standing. Money/assets are no longer dominant social currencies (and thus more willing to be risked)... it's more personality, looks/style, and tangential social connection.
i.e. I care a lot less that you drive a Ferrari and a lot more that you can get me into X social event through Y connection, or that you can give me good advice on popular art. Gotta keep up with the Jones' somehow, and when everyone has too much money you have to find other social signals.
I was fortunate to end up with a bunch of scholarships and funding to let me go to a much more expensive college than I would ever have otherwise been able to afford. Guy who lived across the hall from me was the son of a pharma exec, and I ended up learning a lot about how that stratum of society works.
And that's pretty close to it. I've known people who literally can say "oh, yeah, I don't need a hotel on that Europe trip, a friend of the family has a castle I can stay in".
It was clear that it was only supposed to be for long term residents and short-term tenants airbnb/tripadvisor-rentals types were "unwelcome" (I imagine to maintain the exclusive feel of the place). They literally had signs up implying it was illegal to be a short-term renter there and, if caught, you might be refused access to facilities.
However, the apartment (and the apartment blocks) was so obviously empty of long term residents, it was sad to see such a waste of space.
The owner of our apartment was someone in Oxford who I imagined was just trying to get a little money in just to pay the service charge while waiting for his capital investment to mature.
Despite the luxury of the place, this skyrise was like a dead zone. I felt sorry for the actual residents because there was no community for them.
And to loop around to a point related to your post, it didn't make for a good holiday experience.
Actually, you can test these words of wisdom. Luxury is expensive so few get to experience it. However, in Thailand it is cheap so try it out.
One thing it will teach you is that luxury is fun for a minute, but it may not make you happy. Worth trying it first before you chase it too hard in your home country and realise what a mistake it might be to dedicate too much time in the pursuit of it.
But compared to the USA the taxes are very low even for a 20 million penthouse.
Homes are assessed by the most recent sale price. Both the city and the home owner can appeal that assessment-
So in cases where you overpay for whatever reason you can get it reduced, as well as if your home falls in value after you buy it - In cases where you sell a friend your house for a dollar, the city can appeal the 'last sale price' to get a market assessment. If you do a major addition, the home gets reassessed. Assessments are capped at something like 1-2% increase a year max, so you can budget increases accordingly, thanks to prop 13.
This compared to florida, where my home purchase/sale price has nothing to do with the appraisal. Instead they look at all 'comparable' homes and average out the assessment that way. That has the disadvantage of having half the people underpaying for their property tax and half overpaying.
In France, municipalities can preempt real estate transactions as long as they offer more than the buyer, so the city would get your house for two dollars.
This is mostly to discourage under-reporting of transaction prices, as property ownership change taxes are a major revenue source for cities...
ftfy
As far as I understood, one of the core goals of all these subsidies (I'm using this phrase to group all the mechanisms that change total cost of ownership, be it tax rate or whatever) were designed to keep people from being thrown out of their homes by rising taxes due to rising value and creating affordable housing. I base my comment on this.
First of all property prices can rise due to [fake] economic growth/housing bubbles. In that case most property values rise proportionally, therefore no change here - housing gets more expensive in general.
Second, property prices can rise due to area getting more attractive or just having more luxurious properties. And if you can no longer afford living there due to rising taxes - this means that you just happen to live in an area that is out of your class. Income change (e.g. loss of a job) might throw a family into a lower class. Is it unreasonable to expect to relocate? Personally I don't think so. The same should apply to rising property costs in a neighbourhood.
Last, any regulation differences in the same area (housing in this case) creates non-free, regulated market and as a consequence actual prices might differ from expected "natural" free-market values by quite a margin or just cancel the intended effect out. For example artificially lowering construction prices in a new neighbourhood (tax exemptions; city funded utilities installation: electricity, plumbing, etc.) might create demand higher than supply effectively cancelling out the intended price reduction. Of course city planners might want to prohibit industrial buildings in some areas, but these are in no direct competition with living places.
I believe that the best solution is to simply have a fixed tax rate based on property value. The biggest challenge here is to calculate real market value without actually transferring ownership. The obvious choice of sell price is only valid for several years, while property can be held for decades. Valuation based on rental price is off if one can rent from wife. Yes, there are loopholes to plug and mechanisms to adjust billable property value without sudden spikes to place. The only way to make housing more available to the poor I see is to lower billable property value if it contains at least x units and maximum household income averaged over y years is less than z, legally placing tax burden on renters.
I support equality in taxing. Alas such things are labeled regressive but it's always the poor who end up under the bus. Complicated progressive tax schemes always benefit the rich more than the poor. Always.
I am assuming having rich people in your city is a good thing, but I genuinely think it is overall.
They're willing to pay $100 million for apartments that'd probably go for a tenth or less of that in any other city. Let's not pretend having to pay a bit more tax is going to drive them to live in Tulsa. The prestige of living in NYC is the main draw, I'd imagine.
Yes, most cities cannot attract billionaires like New York. But London or Hong Kong can. And London has been much more successful at it than New York lately.
Fun fact: the states with the most billionaires per capita are... Oklahoma, Oregon, and Ohio. New York comes in at #4.
In residence, perhaps.
Yet how many own a pied-à-terre in New York, while residing primarily elsewhere?
According to the above link, Oklahoma has 5 billionaires, Oregon has 2, Ohio has 4. New York, at #4 per capita, has 88; California has 111. The "surprise" is mostly due to low counts.
For any process (like wealth) with large extremes, if you subdivide it into bins, you are going to get local extrema just due to low counts. The only mildly informative thing is Oklahoma (oil and gas). Ohio is a few elderly (ages 77, 74, 70) manufacturing folks -- their count seems to have dipped to 3, according to http://www.forbes.com/billionaires/list/#version:static_sear..., which would remove Ohio from the top 3 per capita.
The article stated $17k tax on a $100M (market value) condo. Assuming the buyer pays in cash, the property retains its value, and ignoring the condo fees, that person is paying $1417 a month for the option of living in one of the most prestigious places in the world.
I'm not an expert on housing costs in NYC, but that seems like a pretty good deal.
If you asked me if I wanted to rent that place for $1417 I would absolutely say yes. But I don't happen to have $100M lying around.
When you can pay cash for everything, the budgetary math is more oriented around periodic cash flows. Taxes and insurance and depreciation become monthly accounting expenses that have to be paid from monthly incomes. The actual sale price of the place is almost irrelevant.
What if you had so much money that you have already bought everything you ever wanted? Keeping it all is now just a matter of keeping the monthly expenses below the monthly incomes.
Having money makes it easier to save money, even on a much smaller scale.
If you can pay cash for your commuter car, you pay $15000. If you get a 48-month loan at 5%, you pay 10.5% more total over those 4 years. That additional expense is not added to the resale price of the car.
If you can pay cash for your house, you pay $250000. If you get a 360-month loan at 5%, you pay 93% more total over those 30 years. That additional cost is not added to the value of the property.
Loan interest is an expense that is consumed. It does not return to you as equity in any asset. Rent and taxes are similar, in that the money you pay does not return to you as retained value. They are gone, in the same way that a cake that is eaten cannot be saved for later.
If you're rich, you can establish an accident liability escrow account instead of buying car driver's insurance. You can effectively self-insure with a risk pool of one person. The money in the escrow account still earns interest. Not only do the people who do that not pay premiums, which are lost, they can keep all their money, and even pay themselves a little extra, for not causing accidents. But if they have one, no big deal. They pay for the damage, then top up the escrow account. Their premiums do not increase.
All you need to save money is to be rich. So simple. Everyone should do it, right?
That's what the extreme frugality crowd does. If you drastically reduce your living expenses, you can save more rapidly, and begin to take advantage of the lowered expense opportunities available to people with lots of savings, such as the incredibly simple elimination of all loan interest payment expenses. And that allows you to save more.
And the calculations don't care about how much you earn. The only thing that matters is what proportion of your income you can save, and how much your savings can return in excess of inflation.
But you can't just become rich by doing the things that rich people do. They already have their rich people membership cards; their discounts are not yet available to you. You have to get rich first, then do those things to stay rich or become richer.
This just in, you don't pay 100% of your home's value in property taxes each year!
Commercial property (that includes residential rental property in my book) maybe property tax still makes sense because landlords are pretty much always indexing rent to property value anyway.
Additionally, property taxes are (usually) progressive. In places like NYC where they aren't that should be fixed.
The idea of an aggressive mill levy on someone's additional homes seems sane: use it or sell it. I just think universality of property tax isn't actually fair, just like a $200 speeding ticket isn't fair. Indexing it somehow to your worth or income is more fair.
By the way, property tax and land value tax are different. Land value tax is superior than the other.
(I'm not arguing that they or any other tax ought to be progressive; I'm just not aware of any place where they are progressive on an income-adjusted basis [whether directly or indirectly])