I love this article (disclosure: written by friend of friend) and 421a is ludicrous.<p>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.<p>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.<p>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.
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.<p>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.<p>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.
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.<p>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 <i>investment</i> 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.<p>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.
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.<p>>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.<p>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]<p>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]<p>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.<p>[0] <a href="http://www.cnbc.com/id/49360274" rel="nofollow">http://www.cnbc.com/id/49360274</a>
[1] <a href="http://www.nytimes.com/2015/04/21/nyregion/poor-door-building-draws-88000-applicants-for-55-rental-units.html?_r=0" rel="nofollow">http://www.nytimes.com/2015/04/21/nyregion/poor-door-buildin...</a>
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.
"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."<p>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.<p>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.<p>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.<p>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.
London has similar issues -<p><a href="http://www.independent.co.uk/news/uk/home-news/sultans-tax-discount-on-london-house-shows-law-favours-rich-8229543.html" rel="nofollow">http://www.independent.co.uk/news/uk/home-news/sultans-tax-d...</a><p><a href="http://www.thesundaytimes.co.uk/sto/news/uk_news/National/article1189018.ece" rel="nofollow">http://www.thesundaytimes.co.uk/sto/news/uk_news/National/ar...</a><p><a href="http://www.theguardian.com/society/2014/jan/31/inside-london-billionaires-row-derelict-mansions-hampstead" rel="nofollow">http://www.theguardian.com/society/2014/jan/31/inside-london...</a>
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.
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.<p>And if you think New York is bad, take a look in Hong Kong.
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.<p>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.<p>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.<p>Fairness shouldn't impact the requirements for low income units. Those should be traded for the right to build, not for a tax break.<p>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.
The system in California is pretty ideal. I say this as a property owner there.<p>Homes are assessed by the most recent sale price.
Both the city and the home owner can appeal that assessment-<p>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.<p>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.
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.
I am not even from USA, but this whole thing seems a bit off to me.<p>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.<p>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.<p>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.<p>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.<p>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.
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.<p>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.
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.
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.<p>I am assuming having rich people in your city is a good thing, but I genuinely think it is overall.
>And buyers are paying only a fraction of that fraction in property taxes.<p>This just in, you don't pay 100% of your home's value in property taxes each year!
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.<p>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.