Why Billionaires Don't Pay Property Taxes in New York

http://www.citylab.com/housing/2015/05/why-billionaires-dont-pay-property-taxes-in-new-york/389886/?utm_source=SFTwitter

by epsylon • 11 years ago

273 200 11 years ago

citylab.com

jbhatab• 11 years ago

Wouldn't another city just adopt similar systems and over time start to attract billionaires? I'm sure that this effects their decision of where they purchase real estate.

I am assuming having rich people in your city is a good thing, but I genuinely think it is overall.

ceejayoz2• 11 years ago

Wouldn't another city just adopt similar systems and over time start to attract billionaires?

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.

ubernostrum4• 11 years ago

Remember that real estate is about three things: location, location, and location. You bribe your way into tax abatements for luxury condos basically anywhere, but there's currently no way to bribe someone to move Central Park, the museums and arts centers and all the restaurants and other New-York-specific stuff that actually attracts people to within a few blocks of your cheap-tax-rate tower in Wyoming.

nostromo• 11 years ago

You're not being fair to his or her question.

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.

apalmer• 11 years ago

These are the richest of the richest people anywhere. They live where they want to live. A billionaire doesn't move his whole existence across the country to save 10 million dollars in taxes.

logfromblammo3• 11 years ago

But they don't even need to do that, in this instance.

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.

infinotize• 11 years ago

Many (most?) of these people don't even live in these apartments. In fact, developers actually use this as an argument in favor of new construction - it won't put any more pressure on local infrastructure, because no one will live here.

s73v3r5• 11 years ago

In order for it to work, it has to be a place that billionaires would want to be at in the first place. Something like this isn't going to work in the middle of nowhere, for example.

m-i-l• 11 years ago

The article quotes Michael Bloomberg as saying "If we can find a bunch of billionaires around the world to move here, that would be a godsend". But is attracting billionaires to your city a good thing? I can imagine it would be if they paid their taxes and contributed to the local economy, not just themselves but via their companies and personnel. But the article suggests in many cases they don't, i.e. they pay lower taxes and barely visit let alone invest outside the property market.

lotsofmangos• 11 years ago

London has similar issues -

http://www.independent.co.uk/news/uk/home-news/sultans-tax-d...

http://www.thesundaytimes.co.uk/sto/news/uk_news/National/ar...

http://www.theguardian.com/society/2014/jan/31/inside-london...

ende2• 11 years ago

I've got three words: land value tax

e3b0c2• 11 years ago

To mitigate the political frictions, LVT should probably be bundled with principal residence deduction(or exemption).

ende2• 11 years ago

Yeah, there's a lot of devil in the details as far as determining the actual formula as a function land value. I typically imagine there are ways to align an LVT along a progressive scale, such that the little old lady who owns nothing but her own small lot isn't burdened by the tax while generously backed speculators buying up all waterfront property in sight are.

Spooky233• 11 years ago

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.

ceejayoz2• 11 years ago

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?

spikels• 11 years ago

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/...

patmcc• 11 years ago

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.

jwiley• 11 years ago

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.

brandonmenc3• 11 years ago

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.

DamnYuppie2• 11 years ago

Taxes on property are not about consumption of services.

davmre• 11 years ago

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.

granfalloon• 11 years ago

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?

Retric2• 11 years ago

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.

s73v3r5• 11 years ago

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.

mtviewdave4• 11 years ago

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.

jseliger• 11 years ago

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.

evanpw• 11 years ago

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.

resu_nimda• 11 years ago

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?

Kalium6• 11 years ago

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.

iyn• 11 years ago

    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.

hobo_mark• 11 years ago

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

or the TLDR version

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

sogen• 11 years ago

lots of mexican politicians use this scheme...

at-fates-hands• 11 years ago

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.

bko5• 11 years ago

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.

mixmastamyk• 11 years ago

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.

jahewson• 11 years ago

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.

ksk• 11 years ago

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.

sukilot11• 11 years ago

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.

rhino369• 11 years ago

Jesus, that article took forever to describe the problem. Inverted pyramid guys, come on.

ed_blackburn• 11 years ago

I wonder how many of these flats are occupied. In London such flats are investments for a balance sheet and remain unoccupied.

ChuckMcM• 11 years ago

There has got to be a really awesome AirBnB type service in here for the rich but not that rich types. All that unused property, all those traveling rich people for whom a hotel is too 'exposed'. Connect those dots people! :-)

pdeuchler• 11 years ago

This already exists in most elite social circles, albeit informally. A shared realtor, you happen to own a yacht slip next to someone at St. Barts, serendipitous private jet flights, etc. etc.

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.

XJOKOLAT• 11 years ago

We recently stayed in (what was marketed as) one of the top residential, luxury skyrise apartment blocks in Thailand. For pennies.

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.

walshemj• 11 years ago

But you still have to pay council tax and councils can change absentee owners more.

But compared to the USA the taxes are very low even for a 20 million penthouse.

allworknoplay5• 11 years ago

I love this article (disclosure: written by friend of friend) and 421a is ludicrous.

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.

bradleyjg2• 11 years ago

A few points.

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.

allworknoplay5• 11 years ago

Right, but a rich person with lots of money to throw around would buy three a three unit townhouse and price out three families just to keep it empty 80% of the time -- This is the value of midtown luxury building construction -- it draws a remarkable amount of the money away from pricing out actual new yorkers.

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.

cynicalkane• 11 years ago

I agree with most of this, but "concessions for low-income housing" don't actually achieve the goal of making housing more affordable, because they penalize developers for developing.

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.

LordKano4• 11 years ago

The reality of NYC housing, real estate and taxation are vastly different from what I have experienced.

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.

AnimalMuppet• 11 years ago

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.

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).

armsmasher4• 11 years ago

Author here (thanks!), and yes, you're right, the alternative to ultra-luxe construction is more frightening, and we know that because of San Francisco. That's worth keeping in mind.

ceras• 11 years ago

it's totally worth noting that NYC does a much better job than most cities at permitting the construction of new luxury units

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.

usaphp• 11 years ago

Not many Russians in New York, mostly Ukrainians.

tn13• 11 years ago

In general when you have super complex laws, the law will always help rich and powerful simply because they will be the only once who will have the resources to pass through the myriad laws.

rich_tariffs• 11 years ago

I live in a state which does something similar to this -- the sales tax is extremely high, and property taxes are laughably low. I have never cared to investigate it, but my hunch is it protects those who are already land owners, and therefor the economic elite, and burdens renters and other lower income citizens with a disproportionate tax burden.

MagicWishMonkey• 11 years ago

It's just another way to shift the tax burden from the rich to the poor.

mikeyouse2• 11 years ago

Find your state in Appendix B (Page 27) here:

http://www.itep.org/pdf/whopaysreport.pdf

To see just how much more difficult they make it for the poor.

DamnYuppie2• 11 years ago

My quibble with your assertion is that if property taxes were higher it would also hit the lower income citizens as well. Those property taxes would just be passed along as an increase in their rent.

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.

crdoconnor2• 11 years ago

My quibble with your assertion is that if property taxes were higher it would also hit the lower income citizens as well. Those property taxes would just be passed along as an increase in their rent.

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).

Frondo3• 11 years ago

Nope. If the landlords could raise the rates, they already would. This whole "cost X gets passed onto consumers" flies in the face of basic economics: the price is what people are willing to pay, separated from what costs/fees/taxes are applied to the supplier.

ryandrake• 11 years ago

Simultaneously disgusting and utterly unsurprising.

forrestthewoods• 11 years ago

Tax breaks made to protect the poor all too often benefit the wealthiest the most. Which causes the most harm to the group it was meant to protect. Oops.

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.

danmaz74• 11 years ago

Progressive tax schemes don't need to be complicated.

Quanticles• 11 years ago

And buyers are paying only a fraction of that fraction in property taxes.

This just in, you don't pay 100% of your home's value in property taxes each year!

emehrkay• 11 years ago

I should become a billionaire. Any advice?

mikeyouse2• 11 years ago

http://www.businessinsider.com/elon-musks-first-wife-explain...

woof2• 11 years ago

Inherit

bko5• 11 years ago

One of the conditions required for a condo to receive generous tax breaks (which it passes on to the tenants) is that they build affordable housing.

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...

thrownaway2424• 11 years ago

Direct cash payment is always better than subsidies. Subsidized housing simply transfers money to property owners.

CPLX4• 11 years ago

Direct cash payment is always better than subsidies.

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.

sukilot11• 11 years ago

In a sellers market, cash transfers areeffectively subsidies -- the landlord consumes all the renter's ability to pay.

jgalt2122• 11 years ago

I'm no socialist, but this one line makes me sick to my stomach.

In NYC, Billionaires Pay 1/100th the Average Property-Tax Rate

jgalt2122• 11 years ago

I guess Bill Ackman's assistant gave be the downvote here.

woof2• 11 years ago

Paying less (taxes) and earning more (from others) are Billionaire traits.

zaroth5• 11 years ago

I assume the ability to sell these floors out as a tax shelter / investment property factors in heavily to the financing and scale of the entire project to begin with. Does NYC get to have a One57 Tower without duplex condos selling for 9 figures? Probably not. Do duplex condos sell for anywhere close to 9 figures if the annual property taxes are 7 figures? Certainly not.

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.

DMac87• 11 years ago

The problem with this reasoning is that while new buildings / tenants may be marginally beneficial to the city, if the rate new condos pay is significantly lower than existing buildings, then fairness issues arise. To me, this is analogous to incentives for building factories, etc - why does the big / new factory get a tax incentive while the small / old one doesn't, if it generates the same spinoff investment / employment / revenue? Put another way, the marginal revenue gain may be positive, but lower than the community average revenue gain (or gain in comparable properties) - how is that fair?

armsmasher4• 11 years ago

(author here) To your point: "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.

zaroth5• 11 years ago

I understand they are taxed under the code as a "condo" but isn't the point of the article that they are not taxed at the rate of a normal condo vis-a-vis their sales price?

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.

autokad• 11 years ago

"he didn't mean so that the city could literally confiscate their assets"

well, I wouldn't put it past him.

s73v3r5• 11 years ago

You're acting like the uber rich wouldn't be in New York anyways.

ubernostrum4• 11 years ago

but rather, the city can benefit from the investment that follows

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.

hahamrfunnyguy• 11 years ago

Property taxes in ALL of NY are excessively high.

joshuaheard• 11 years ago

"The values of these new condos are being assessed at just a fraction of what they're worth. And buyers are paying only a fraction of that fraction in property taxes."

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.

cmurf2• 11 years ago

Unrented residential property probably shouldn't have property tax. This is an ancient feudal carry over. Piles of retirees across the U.S., including NYC, bought property two epochs ago and in many cases can't afford the property taxes. Property taxes are regressive and unfair. Instead, counties should get their money from a combination of income tax and sales tax; OR at w.orst index the property tax to income.

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.

andrewvc• 11 years ago

Property tax isn't just about the income to the state. Property tax is about making sure that people are putting the property to work. If you're second mansion is costing you an extra chunk of change every year and you never visit it you'll be more likely to sell.

Additionally, property taxes are (usually) progressive. In places like NYC where they aren't that should be fixed.

cmurf2• 11 years ago

Property tax typically doesn't go to the state at all. It's a county assessment. An argument for keeping property taxes is they tend to be more stable than income or sales taxes, and since counties tend to have less float in their budget (a large pile of county spending is on the public school system) it probably works better for them.

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.

sokoloff8• 11 years ago

In what way are property taxes progressive? It seems to me that they are inherently a regressive tax (with respect to income on a cohort basis).

(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])

paulsutter• 11 years ago

They need to unify taxes on residential units in a revenue neutral way. A unified rate should be selected that reduces taxes on ordinary units by the same amount as the extra billion from the superrich. This should make a change more politically palatable.

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.

sokoloff8• 11 years ago

Anything that affects the cap rate also affects the marginal conversion of that building from rentals into owner-occupant usage (especially in jurisdictions where there's a homestead or owner-occupant partial abatement of taxes).

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... :) )

DanBlake• 11 years ago

The system in California is pretty ideal. I say this as a property owner there.

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.

ild2• 11 years ago

Indiana has a hard cap of 1% on property tax AFAIK.

brohee• 11 years ago

"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"

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...

lsiebert• 11 years ago

Actually it's interesting to note the parallels of the relevant laws in New York with prop 13 in California, the idea was to encourage and enable people to stay in their homes when inflation was high in the 1970's, but weren't rolled back, creating issues.

ksec• 11 years ago

To me, Property should not be a investment option, or Heavy tax ( 50%+ ) on Property investment profits. Everyone deserve to have a place to live, large or small. The property market ( especially after recent years of QE ) has skyrocket to a point where many can not afford to live.

And if you think New York is bad, take a look in Hong Kong.

friendzis• 11 years ago

I am not even from USA, but this whole thing seems a bit off to me.

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.

ctdonath• 11 years ago

Nobody is discussing the fact that the people voted into power on grounds that they would "do something about this" have been in power and re elected on those grounds for * decades*, have done nothing about it but make more exploitable loopholes, and whine about how something must be done and they're the people to do it so must be re elected. Stop voting for the same group of Democrats who keep not solving the problem.

gr3yh47• 11 years ago

Stop voting for the same group of *'two-party system reps-for-rent' who keep not solving the problem.

ftfy

sukilot11• 11 years ago

Bloomberg isn't a party rep for rent. He is a billionaire who bought the mayoralty for himself to grow his stature and pursue a fun project.

Why Billionaires Don't Pay Property Taxes in New York

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