Hacker News Reader

Comment by Spooky23 | Hacker News Reader

Nobody lives in these condos for the most part. They are money laundering/tax shelter vehicles for the uber-rich, especially foreigners. The same phenomenon is common in south florida.

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.

View on HN

Struggling to connect the lines of your reasoning. You say these are money laundering tax shelters, and that the poorest members of society pay far more than the foreign billionaires who own them and make money trading them around.

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.

> They are money laundering/tax shelter vehicles for the uber-rich, especially foreigners.

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?

In many if not most areas in the US assessed value and market value are two different things. The system in NYC (for homes not condos) is that the assessed value is 6% of market value. While in other place like the entire state of California (at least at time of purchase) assessed value is 100% of the market value - a more straightforward method used in some states. The percentage is know as the "assessment ratio" and varies by state and even within states such as by city or county.

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.

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.

There is absolutely no mathematical difference between 6% and 100% assessment rate, with a corresponding tax rate , it just a change in units.

The only relevant distinction would be if tax or assessment were curved as a function of actual value.

It's hard to come up with a system of assessing property values that doesn't have flaws.

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.

> It's hard to come up with a system of assessing property values that doesn't have flaws.

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.

There are many systems that get you within +/-25% for 90% of the houses. Yours is probably in that range, depending on what time period you choose.

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?"

Taxes are usually assessed and paid once a year, so I would go with one year.

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.

ANSI standard (for single-family buildings only) was an interesting read. Thanks for that pointer!

I've often wondered if one could build a system where the appeals process for an assessment is "the municipality must buy the house at 95% of the assessed value" and "the homeowner must accept a bid at 150% of the assessed value [if they haven't already appealed the assessment in a timely fashion]". Naturally, I started wondering this while I owned a house that the town was over-assessing IMO.

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.

It's not so hard. You re-base the assessment rolls every 4-7 years, and allow owners to challenge unfair assessments in between.

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.

"Re-base the assessment" : yes, but how?

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.)

Usually the use a metrics based valuation using recent sales. Home improvements are captured by building permits. The people who do it tweak the process based on geography and demographics.

That's exactly how mortgage underwriting works. It's not 100% accurate, but there is an appeals process to address inequities.

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.

1. Lenders do that with the willing cooperation of the borrower (to grant access to the building for the appraiser).

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.

Just read this article from 2014 a few days ago - pretty crazy the way they set property values:

"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.

    They are money laundering/tax shelter vehicles for the uber-rich, especially foreigners

Can someone elaborate? I don't know anything about such things and I'm curious how it works.

http://www.occupy.com/article/new-york-real-estate-new-swiss...

or the TLDR version

http://www.occupy.com/sites/default/files/medialibrary/globa...

lots of mexican politicians use this scheme...

I never understood why complaining about foreigners taking real-estate is okay but complaining about foreigners taking our jobs is thought of as (IMO rightfully) xenophobic.

The complaint is that the people don't live there, and therefore don't contribute to the neighborhood. See the recent article about how Vancouver is dying for more info.

Foreign workers are a great benefit to the economy. However, past a certain point, foreign (non-resident) ownership of real estate doesn't provide much benefit to the local economy and can easily push prices up to the point where housing is unaffordable for locals, due to the influx of foreign speculators. Chinese ownership in the Bay Area and Russian ownership in London are two current examples.

As well as Venezuelan ownership in South Florida.

And also, jobs are given, not taken. So if they're going to unqualified people (whether local or foreign), the person taking the job is never to blame. They're just trying to improve their life situation, like anyone else.

No one gives a job to an unqualified person, not for long. (Maybe a nepotistic payroll handout to a friend, but not a job. A job only exists because the worker generates value)

Because immigrants actually live here. it is isn't about foreigners, it is about absentees.

And that fact that when a billionaire leaves their home country, it is often for shady reasons, not innocent enduring persecution or suffering.

>Nobody lives in these condos for the most part. They are money laundering/tax shelter vehicles for the uber-rich, especially foreigners. The same phenomenon is common in south florida.

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.

Which is the reason some people in San Francisco are skeptical about the ability of increased housing supply to contain or decrease housing prices

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.

>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.

Well, the impact is variable, though. If people are buying pied-à-terres out of the existing housing stock anyway, consolidating them into new luxury condos downtown makes those apartments available to regular renters.

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.)

And when developers are allowed to build for the whole market, they will build first for the top... and then for everyone else once the high end is exhausted. The demand there is not infinite. It's not even close to infinite.

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.

>The demand there is not infinite. It's not even close to infinite.

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 question is old. It's been asked. It's been debated. Both question and debate were old when both of us were young.

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.

> People are skeptical because they don't understand basic economics

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.

1) You have to be careful with your definition of "local". The major reason that housing prices are so high is that many more people would like to be SF locals than currently can be.

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.

Which I don't think anyone knows how to do.

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?

> 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.

Building it is an excellent first step. Housing that is never built will with 100% certainty not actually be used by locals.

That makes sense for undeveloped land (e.g. the Balboa Reservoir project). But there's very little of that in San Francisco. Realistically, adding to San Francisco's housing supply means replacing a lot of existing stock with higher density housing. If that higher-density housing is mostly or completely occupied by locals (by which I mean people who will be domiciled at that location), then it's a net win. But if not, then San Francisco residents end up worse off.

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.

Fortunately, that situation can be handled effectively through scale.

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.

I generally agree with you from a policy point of view, but I think you're oversimplifying:

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.

Over time, the number of people looking for a pied-à-terre is not fixed. This is true. This is also true for every other possible category of people.

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.

You just switched the subject of the conversation from "luxury condos for wealthy people" to "infrastructure". That's a tricky debate tactic. Of course you have to "grow infrastructure," nobody is arguing that in the abstract, but there's a lot of choices to make about what and how. Luxury condos are one type of thing that can be built, middle-income housing is another. They have different effects on the city. The current incentives that lead developers to building only luxury condos are not a law of nature or economics, they're a result of political choices by the city and state, and they can be changed.

Housing is infrastructure. Not building housing is not building infrastructure. If you don't build "luxury condos", then what was intended to be middle-income housing will become "luxury condos" because you failed to build sufficient infrastructure. This is not a hypothesis - this is an empirical observation from every city that's ever tried rent control.

There are exactly zero tricky debate tactics going on here.

> Nobody lives in these condos for the most part. They are money laundering/tax shelter vehicles for the uber-rich, especially foreigners.

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.

Taxes on property are not about consumption of services.

They are using space that could otherwise be occupied by others. Doing so would reduce pressure in the housing market and increase the productive density of the city. Part of the point of property taxes is to encourage productive use of space - if the value you're getting isn't enough to cover the property taxes, you're incentivized to sell to someone who will use the space more productively.

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.

> They are using space that could otherwise be occupied by others.

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?

...yes?

Well here's the thing: if not for those extra tax shelter floors, he would not have built them at all, because no one else was willing to pay for a use of that space. Therefore, had he not built the extra floors on his theoretical tower, the space would have gone completely unused (and likely could not be used in the future).

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.

It seems unlikely that any space in NYC would go unused, let alone never be used.

You would think so, and yet... http://blogs.villagevoice.com/runninscared/2012/01/new_york_...

Manufactured scarcity shouldn't count. ;-)

That space is being used to drive up the prices of the space actually being used.

Then all towers in New York should be infinitely tall

You jest, but with NY's housing situation, every tower should be as high as reasonably possible to maximum livable space.

There is no such thing as "no one else was willing to pay for a use of that space". Maybe no one else would pay the exorbitant price they are sold for and, most likely, no one would pay that price if they had to pay reasonable property taxes on that unit. They are doing no favors to the city. Since property taxes are so low, it often pays just to withdraw units from the market to inflate prices further by creating an artificial scarcity.

"if not for those extra tax shelter floors, he would not have built them at all"

1. You do not know that.

2. Boo hoo. He wouldn't have built the building, but someone else would have.

So the more tax shelters, the taller the towers?

This misses the mark completely on what the NYC building market is like.

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.

Seems equally fair for a city to require the standard tax rate regardless of whether the owner lives there. What interest does a city have in allowing residential housing to be bought up by absentee owners paying lower taxes vs. locals who (a) need housing in order to contribute to the community and (b) will pay the standard tax rate?

Infrastructure like water, roads, and subway systems is only loosly tied to useage. If NY needs to build an extra 500 feet of subway because of an empty building in the middle of the city that's a direct cost.

> needs to build an extra 500 feet of subway because of an empty building

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.

Not all spending is directly related to infrastructure costs. AKA school teacher salaries. Also, land is varying pricy in cities with a small empty lot could easily be worth 100 million. Or as they say, location, location, location.

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?

They're using the land/housing that could otherwise be used by someone who actually does live there. Just because you're choosing not to spend your time there shouldn't matter.

Reply on news.ycombinator.com