Real estate taxes prediction 2021

prp,
1. In many cases, the co-op/condos are not being taxed at full rental value as they get phased in over a number of years.
2. If a coop/condo was being charged at full implied rental value, and the rental values decrease, I believe the decrease will also be phased in over time. Usually #1 will prevail and the reduction in value due to reduced rent may still be higher than the value the taxes are being on.
3. The city can adjust the cap rate embedded in the calculation lower.
4. In addition, the city can make up for the decrease in assessed value by increasing the tax rate.
5. Also, average rents being paid have not really reduced as much as new rentals. Rental value is based on average rent paid rather than rent of new renters.

Bottom line. City needs the money. They will figure out a way to increase in line with other recent years. The calculation methodology lets the city makeup whatever valuation they want due to embedded cap rate assumption in the calculation.

A subtle but important difference:
Taxes aren't based on "potential rental valuations,"
Assessed Values are. Assessed Values are independent of Real Estate Taxes paid because the Tax Rates can go up or down independently. So AV can got up yet taxes go down and vice-versa. This is because the City backs into the tax rate every year by taking the total Assessed Value for the entire Tax Class, choosing the amount of money they want to collect, and dividing. This is why the City doesn't care if properties are assessed at fractions of their actual market values. The thing which they need to get correct is the relative values to each other (and the truth be told that doesn't really matter either. I don't think this city cares all that much if taxpayer A pays too little as long as taxpayer B is overcharged by that same amount).

So, rental prices go down, your Coop building's assessment goes down, the total assessments of all Class 2 properties goes down, the City says "collect more from Class 2 properties," and everyone pays more Real Estate Taxes.

If you want a good example of this look at how much the tax rate has gone up on Class 1 properties since 1980.

@30 and 300, Great points. Thanks for the detailed analysis and explanation.

Agreed all excellent points.
But the city already gets around 44% of its total income from property taxes alone.
Property taxes represent 80% of my building's total maintenance bill.
We are well run but not THAT well run.
City should really look elsewhere.

They’re going up. There’s no other way. Increasing sales tax will kill consumption. Increasing income tax will cause people who can pick up and leave to do so. You know what you can’t pack up and take to Florida with you?! Your 10-20mm trophy property or your 5mm luxury apartment. So people who own those properties will either pay it or sell it a steep discount to someone who will happily pay it because they’re getting a property at a steep discount.

It’s honestly a travesty of public policy making if the city and state try to fill their budget hole by increasing income tax. Workers and jobs can leave. Apartments owned by foreign LLCs, AirbnB landlords, and speculators can’t.

@Truth: Unfortunately, the city doesn't have a lot of options on the revenue side, as I believe many of the options require NYS approval. This is one of the few levers fully under its control.

It doesn't really have much flexibility on the cost side, either, due to the limits of union contracts. Hence de Blasio's "strategy" of hoping for a federal bailout and asking to issue debt to close this fiscal gap.

Indeed Thoth, just lamenting future inevitabilities

there's an option to raise *income* taxes on the wealthy, which the mayor has been trying to do for years (remember, that's how he thought he would get Universal pre-K funded) but that's not politically palatable to Gov. Cuomo.

I think there will be some Federal money coming down the pike in 2021, but if it doesn't, then we get right back to "higher taxes vs deep service cuts."

ali r.

Ali, Any hope of concessions from unions in form of abuse of benefits - overtime, disability etc?

I'm in a non-union building now, but in my experience with 32B-J at other buildings (including the Parc Vendome, where I'm a long-term owner) is that there really isn't that kind of abuse. Maybe I've just been lucky in that I've been in buildings with efficient resident managers, but I don't think so; I think it's more likely to be the norm. (And this is not just my happy view of human nature talking... I remember well owning a house in Nassau County and finding out that there were dead people, plural, on the local government payroll.) If anything the problem with union workers now is that they're frontliners, at a high risk for Coronavirus, whether they're behind a sneeze shield or not, and I don't think they're getting paid for that risk. The union benefits are certainly fantastic, but the salaries aren't that high.

I do think though that property taxes are starting to crowd out other expenditures. I've said for about five years now -- buildings like my current co-op, which see themselves as middle-class/upper middle-class buildings, are going to have to pick a lane and either become "rich people" buildings, or they are going to have to walk back from the idea of full service.

Even if the Dems take both GA seats, Joe Manchin has already said he won't vote to eliminate the filibuster, so any federal aid will need bipartisan agreement. This does not bode well for NYS or NYC.

" If anything the problem with union workers now is that they're frontliners, at a high risk for Coronavirus, whether they're behind a sneeze shield or not, and I don't think they're getting paid for that risk. The union benefits are certainly fantastic, but the salaries aren't that high."

@Ali - I agree, but I am in the distinct minority in my building, getting outvoted regularly. I think how one feels on this question gets to the heart of the divide in this country right now. I understand the philosophy underlying those who feel differently on this issue than I do, even if I don't personally feel that way.

"I do think though that property taxes are starting to crowd out other expenditures. I've said for about five years now -- buildings like my current co-op, which see themselves as middle-class/upper middle-class buildings, are going to have to pick a lane and either become "rich people" buildings, or they are going to have to walk back from the idea of full service."

Agree.

What does it mean to walk back from being full service? What services woudl be cut?

A-mouse, presumably a shift of doormen; some UWS buildings my building's size have doormen coverage roughly half-time instead of 24/7.

If you start lowering service you also lower the value of your apartment.

I thought 300 was referring to NYC's public sector unions, not private sector unions such as doormen.

Unfortunately, the history of public sector unions in the US being wise and farsighted on fiscal matters is not encouraging.

IA stache, but OTOH, the "middle class" (whatever that is) cannot infinitely bear 5% housing cost increases, especially in a world where healthcare and education costs are jumping as well.

The alternative would be to light out for the hills, but ... if they think about it, even the rich people don't want us to do that, because it's the middle class that supports the retail. Even though it's possible to shop in my neighborhood, the small businesses in my neighborhood are hurting mightily... it's because the rich are still out of town enough (because Pandemic) that their customer bases have shrunk.

The number of stores closing is astounding. Even delis that have been in business for over 30 years are shuttering.

Thoth, I was indeed talking about public sector unions. There is a lot of benefit abuse. I do realize that salaries are not high.

“I was talking about public sector unions. There is a lot of abuse.”

I discount pronouncements such as the above unless the one making it can back it up with anything other than a WSJ article, a Fox News analysis, or an anecdote. I personally would be interested in any (relatively) unbiased white paper anyone could point me to because I have attempted to find “truth” on this issue and have found it to be illusory.

But I think it important to also note that I personally am not a fan of public sector unions for structural issues. Union’s mission is to protect its workers even if such is not in the interest of the public good. The structural conflict if interest issue is distinct from the individual employee abuse question. I suspect George could articulate the argument from the right to focus on the structural issues and steer the conversation away from the offensive direction in which it might lead if left in the hands of others.

To Thoth’s point regarding public sector unions not focusing on fiscal responsibility, that is the structural conflict of interest that I am referring to. Public sector unions are a different animal than private sector unions and discussion of the two should not be intertwined (in my book), but I find discussion to be more productive when geared towards the larger issue than the marginal issue of that occasional individual employee who abuses whatever benefits are part of their employment. I hear all too often the trope that the majority of unionized government workers are lazy malingerers; I find that trope offensive. Maybe nobody was headed in that direction, but I thought it best to nip any hint of it in the bud just to be safe.

While I am also skeptical of public-sector unions as presently constituted, I don't think they can be blamed for focusing on member benefits at the expense of fiscal health. That's their job. It's like blaming a defense attorney for not focusing on crime victims.

For better or worse, we've configured both labor and justice as adversarial systems. The idea is that vigorous defense of each party's interests will meet someplace acceptable to both, and the "truth" of the matter will emerge as a secondary effect of their battle. (Other countries invert these priorities.) So if we've landed somewhere that is unacceptable to the NYS treasury, that indicates poor negotiation on their part. They had one job: to protect state interests, over which they had sole discretion up to the moment the contract was signed. Unfortunately those losers of the past were elected and/or appointed by the people at least, not just by union members, so barring overt bankruptcy we're responsible to cough up their debts.

As others have mentioned elsewhere, there's ways to get there without punishing the average homeowner. There's a lot of deep-pocketed taxpayers currently profiting from windfalls and loopholes. Dunno if flattening out the curve (pushing *everyone's* effective property tax rate closer to the median effective tax rate) would be enough to close the gap, but it would be a good start.

*at least => at large

@RichardBerg - I agree completely. There is no getting around the mission of the union. Were I Emperor, I would amend statutes to do away with public sector unions on philosophical grounds. Much larger discussion but beside the point as no politician will touch it so we’ve got to focus on the economic reality, which I recognize you and others in this thread are doing.

I would actually very much appreciate an adversarial system between public sector unions and the government. The problem today is that it's the exact reverse. Public sector unions have significant advantages over private sector unions precisely because they can use the political process to select their employers. It would be as if a private union had the power to pick the management of a company. Given that situation, it's not a surprise that state and local pensions and post retirement benefits are setting up fiscal time bombs across the country. The only real check on public sector union power I can see is either legally imposed (like Right to Work laws or legislation that limits their bargaining power) or some sort of enlightened self-interest on the part of the public sector union.

Since the chances of NYC political leadership actually standing up to public sector unions is low, the only hope I see is that the PSUs themselves realize that they are going to eventually kill the golden goose. They should pay attention to what happened in Stockton, Central Falls, San Bernadino, Vallejo, and Detroit, and hopefully learn their lessons. Do I think the chances of this happening are likely? No, but the alternative is going to be quite ugly for everyone involved, including the PSUs themselves.

This is why I'm not at all worried about the MTA. The hares are running wild about service cuts. But there such extraordinary fat in the MTA budget that a crisis might need exactly what they and their unions need to do what politicians can't. If we let the crisis run its course, we might end up with a far better MTA at less cost in a few years. A bailout may have precisely the opposite of its intended effect by delaying but not avoiding the MTA's reckoning.

Ugh, this is why SE needs an edit function. Prior msg meant to read: This is why I'm not at all worried about the MTA. The hares are running wild about service cuts. But there is such extraordinary fat in the MTA budget that a crisis might be exactly what they and their unions need to do what politicians can't. If we let the crisis run its course, we might end up with a far better MTA at less cost in a few years. A bailout may have precisely the opposite of its intended effect by delaying but not avoiding the MTA's reckoning.

George,

"extraordinary fat". In which ways?

This says it all...

https://www.nytimes.com/2017/12/28/nyregion/new-york-subway-construction-costs.html

"The Most Expensive Mile of Subway Track on Earth: How excessive staffing, little competition, generous contracts and archaic rules dramatically inflate capital costs for transit in New York."

Why would operating costs be any different?

I have seen 3 MTA employees changing a bulb in the subway with no more than 8 foot ceiling height. One holding an solid A frame ladder. One handing the bulb and one actually changing it.

I can understand two people - carry the ladder and ensure there are no accidents.

There was probably a fourth person in another location supervising them, directing work locations etc.