A New York City mayoral commission released a report last week that recommends massive changes to the way residential properties are taxed across the five boroughs.
The recommendations from the NYC Advisory Commission On Property Tax Reform are designed to lessen the tax burden for low- and moderate-income homeowners while shifting it to those in wealthier neighborhoods.
Under the current assessment system, single-family homes are taxed on their sales value, while co-ops and condos are grouped together with large rental buildings and are assessed based on the potential gross annual income they would receive if rented.
The tax on one- to three-family homes have also been capped, keeping assessments low even when the market value of a property increases. This means that homeowners can pay the same in property taxes even if the value of their homes drastically differ.
The commission’s proposal would tax co-ops, condos and rental buildings with fewer than 10 units the same as one- to three-family homes, which would be assessed on the sales price and taxed on 100 percent of the market value.
Those in the industry say while the changes make sense, the implementation will dampen an already soft market.
“If it does happen and we see real changes, I feel that it may result in many more properties on the market, as I do feel that there will be people who have been paying very low taxes in townhouses, may be or feel forced to sell as they have thus far been able to stay in homes for generations due to the low cost of ownership,” says Lindsay Barton Barrett, a broker with Douglas Elliman. “It could also certainly have a chilling effect on purchases of townhouses with those low rates. Even the current discussion could do the same.”
Rowena DasGupta, an agent Warburg Realty thinks that the changes will drive many homeowners out of the city.
“This proposed tax system will drive many out not least because it’s becoming increasingly expensive to live here,” DasGupta says. “But perhaps this is another form of class warfare where those who can afford to stay will do so.”
The changes would be a blow to property owners, particularly in the middle class, already reeling from the cap on the SALT deduction, says Christopher Totaro of Warburg Realty.
“When you couple that with … an income tax rate of 32%, 9% sales tax, rising energy costs — 4% in 2020 — insurance rate increases, building repair costs for newly-implemented code compliance laws and building maintenance increases every year, it’s dangerously close to the tipping point of an exodus of owners and a reduction in sales due to sales being taxed immediately at the proposed rates,” Totaro says. “I believe people will reconsider buying. Also, rental buildings would see higher taxes and rents will increase.”
Mark A. Hakim, a real estate attorney with Schwartz Sladkus Reich Greenberg Atlas LLP, says that while the property tax system in New York City, the proposal, like the Housing Stability and Tenant Protection Act of 2019 passed last year by the New York State legislature, doesn’t consider the “realities of the marketplace.”
“Obviously something should be done,” Hakim says. Under the current proposal, “tax bills for some will decrease but will, for others, increase drastically, making their homes and apartments unaffordable and possibly even unsaleable. The legislature needs to slow down and consider the actual effect on individuals who will benefit and those who will not. I truly understand the need for fairness, but a knee-jerk, feel-good legislation, without ample consideration of the real estate markets and economy in general, would be foolish and shortsighted. We already have many people investing and moving to droves more affordable states and there is no need to further push New York into a downward spiral.”