Sky-High Property Taxes Give Renters the Shaft

012907 article lab Sky High Property Taxes  Give Renters the ShaftRenters, beware! You are about to get shafted—thanks to property taxes.

The city’s Finance Department recently announced that New York’s property-market value shot up 19 percent since May 2006.

The city’s property is now valued at $802.4 billion, up from $674.1 billion at the end of fiscal year 2007.

Higher property values normally bring higher property taxes.

So naturally, Mayor Michael Bloomberg last week proposed a $750 million property-tax cut. That, however, should provide little solace for the city’s approximately 5.3 million renters.

Mr. Bloomberg’s proposal would lower property taxes on all four property classes in Manhattan, including for-sale housing, rental buildings and commercial properties.

“I’ve always said I wanted to cut property taxes, and this year we can,” Mr. Bloomberg said during his Jan. 17 State of the City address.

“We” can precisely because of the property-tax windfalls flushing the municipal coffers; this fiscal year, the city should collect $13 billion from property taxes, about 40 percent of all local tax revenue.

But for many years now, rental landlords (and commercial-building owners) have been paying disproportionately more in property taxes; and they often pass these higher taxes on to tenants through higher rents. Therefore, renters—particularly market-rate renters—often pay more proportionally in property taxes than actual property owners, like those in condos and co-ops.

The effective property-tax rate—the tax on every $100 of market value—dropped 65 percent for owners of one- to three-bedroom homes from 1984 to 2006, according to a December study by the city’s Independent Budget Office. At the same time, up it went for rental landlords in elevator buildings, from 3.64 percent to 3.72—the only such increase among the city’s larger commercial and rental properties.

In 1997, the city added a co-op and condo tax abatement. In that year, according to the budget office, the effective tax rate for rental apartment buildings was 1.8 times higher than for co-ops, Manhattan’s dominant form of for-sale housing. Now, rental buildings are taxed at an effective rate 5.5 times higher than that of co-ops.

This disproportion comes at a time of increasing rents in an apartment market only drifting tighter.

A new report by investment brokerage Marcus & Millichap concludes that New York City will end 2007 with the lowest apartment-vacancy rate (2.8 percent) of any city in the nation. And from 2002 through 2005, the median monthly rent for unsubsidized apartments shot up 20 percent, according to the latest State of the City report from the Furman Center for Real Estate & Urban Policy at New York University. Even adjusting for inflation, the report notes, that’s an increase in just three years of 8 percent.

Mr. Bloomberg’s proposal, then—eschewing as it does reform of the city’s notoriously complicated and homeowner-centric property-tax code—will likely do little to give relief to renters.

“Landlords will get a 5 percent decrease for one year in the tax rate, seemingly, but that leaves in place the original problem,” said Glenn Pasanen, an adjunct professor of political science at the City University of New York. “[Bloomberg’s proposal] would once again give more of a benefit to house owners, co-op and condo owners than renters or commercial owners.”

Mr. Pasanen, who has written extensively about property-tax effects on city renters, and others point out the gnawing cause of the disproportion: Condo and co-op owners have more money, and with money often comes political clout. The median household income for renters is around $34,000 annually, according to the Independent Budget Office; for co-op owners, it’s $70,500, and for condos it’s $85,000.

Elected officials respond to this flusher constituency, which has only grown more powerful the last few years, as condo development (almost all of it luxury) has picked up, while rental development has dribbled to a trickle beneath crushing land and construction costs.

In fiscal year 2007, which ends this June, rental landlords paid an average of $2,200 per apartment in property taxes, according to research by the Independent Budget Office with data from the Finance Department. By borough, the average varied widely: Manhattan landlords paid the most, at $3,600 per unit, and Bronx landlords the least, at $1,160.

Given the jump in New York City property values and the owner-favored Bloomberg proposal, landlords will continue to pass on such growing burdens to tenants.

Renters, you’ve been warned.