Piling it On - 7% Property Tax Increase

7% is just the beginning. with unions being so strong in albany, they will bleed the property owners to fund their unfunded bloated benefits. new jersey has the highest prop taxes in teh country and the counties are still in red. higher taxes rarely solves insolvency, it just makes it worse in the long term.

All I want to know is how does this affect tech_guy's model.

This will have zero impact to rents. Landlords happily absorb all cost increases because they are just nice people.

LOL i don't get the obsession about tech_guy's calculations. as far as i can see, if he fools himself with his math (as many claim but i didn't bother to follow through) he will be the only victim. so why would he do it? and why do you care so much if he choses to do that? doing it will be the equivalent of financial martyrdom for the sake of ego, too high a price to pay in my opinion.

in finance, the way to make good decisions often is to be your own devil's advocate instead of reinforcing a preconceived idea.

Rents are determined by the job market not the input costs. You can't pass on an increase if the market doesn't support it. To believe otherwise is to live in a fantasy land where GM can support its higher labor costs with higher priced cars.

"This will have zero impact to rents. Landlords happily absorb all cost increases because they are just nice people."

No, it will have no impact, but not for lack of trying. The market simply won't bear it. They can try and ask, but landlords are having trouble filling apartments even with rents coming down already.

This is what happens in a crash. It is generally *not* good to be an owner in these scenarios.

Pertfitz screwed once again!

" if he fools himself with his math (as many claim but i didn't bother to follow through) he will be the only victim. so why would he do it?"

People generally spend a LOT of effort to make themselves feel better about bad decisions they make... more so than avoiding the actual bad decisions.

Human nature...

rents follow income (ability to pay of the tenants) JuiceMan. a landlord that believes they can pass along every costs lives in fantasy land. specially during a financial meltdown of this size. rents will go down due to higher unemployment and slower household formation (employed people taking on roomates for ex). better to have somebody than to deal with vacated units. my family lives of renting their properties, so anyway this is my experience. not scientific though.

admin... it's so much fun edumcating techie... I love the kid....

Yep...jgr... market forces determine who eats the RE tax increase... if one of my tenants were tettering... then I would most likely eat it... just like the landlords will have to when they r competing for other tenants.

I'll revise to $400psf... :)

Did anyone even read the article? "That would boost the annual bill of the average homeowner by $118, from $3,112 to $3,320." Does anyone think $118 per YEAR is really going to make much of a difference? nyc10022, there are better articles out there that jive with your agenda, no?

That's right. Rents are tied to incomes. What is costs a landlord has no impact on rents. Got it.

> nyc10022, there are better articles out there that jive with your agenda, no?

Yes, all the "market is down 20%" ones, which sort of put a nail in the claims that I was exagerrating on the double digits last month. Oh wait, that was you.. ;-)

But, I don't think I need to harp on those, we're past that, denying it would be tough. So, I'm on to the next one.... trying to figure out how much more we have to go. This is a factor.

Interesting that everyone complained about using the city average for PRICE changes, but now we're going by them for tax changes?

You think the Manhattan difference is $118 per year?

Try again.

7% is 7%. Call it whatever you want, its 7%. And I don't think its gonna stop there.

hey, does anybody know what is the average property tax on Manhattan? (without staten island, bronx, queens, ...). would like to see whether it's much higher than teh $3,112 average across nyc.

"Yes, all the "market is down 20%" ones, which sort of put a nail in the claims that I was exagerrating on the double digits last month. Oh wait, that was you.. ;-)"

Yes, those articles are actually significant. And don't put words in my mouth - I said it was too early to start declaring what you were, simply because the data wasn't out yet. We're getting there, but you love to jump the gun.

"You think the Manhattan difference is $118 per year?
Try again.
7% is 7%. Call it whatever you want, its 7%. And I don't think its gonna stop there."

I actually don't know what it is, and neither do you. I can only go by the data given, which says the average homeowner will see a $118 increase per year. Pretty insignicant, so in a roundabout way, you may be right that this won't impact rents.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alN8vLMnAuoY

"A state monitor, installed after city leaders failed to agree on a budget, ordered a 47 percent increase in property taxes"

well well, maybe thanks to new jersey, with the highest property taxes in teh nation and still increasing, manhattan's will never look too high. it reminds me of a paper that used new jersey's data to show that property tax increases have on average a 10 multiplier effect on home prices. if your property taxes go up by say $1k per year, your home values went down by $10k.

the interesting part of the paper was that it showed that this effect still exist if the property tax increase is only applied to a particular sector of the RE mkt (for ex, only on expensive homes) due to a domino effect across the RE ladder. but, if you have the tax increase you are hit twice (tax increase plus home value down). if you don't have the tax increase, only your house goes down (ie: you suffer half the effect).

Keep in mind that 47% might be the rate increase, but if it factors in value, a large portion might only be making up for the decline...

"Yes, those articles are actually significant. And don't put words in my mouth - I said it was too early to start declaring what you were, simply because the data wasn't out yet. We're getting there, but you love to jump the gun."

Given we're past it, that wasn't jumping the gun, that was calling it right. You can't call it premature when its over and done with.

good point! the only example that they show has only a 31% increase. the paper used increases on amount paid, 31% in this case.

sorry! i mean $5k/year, which leads in avg to a reduction of $50k of home value.

"What is costs a landlord has no impact on rents."

Absolutely, JuiceMan, that is true. Accepted economic theory: inputs have no effect on the value of the output. The output has value, if the input costs exceed that value + a return on capital, then no one will produce the output.

That's first. Second, when the property falls in value, it is reassessed, and property taxes fall. So a 7% increase on a building worth 50% less still means lower taxes.

Third, the economic value of the building is the discounted rent flow. If rents fall, the building is worth less, and less tax is paid on it.

Fourth: rents are 100% correlated to incomes, there is no leverage. The only way a landlord can charge more than incomes allow would be to let a lot of people live in the unit (which after a point is illegal), or change the rent-to-income ratio. Both cases imply greater risk.

Fifth, in NYC property taxes for condominiums and cooperatives are calculated based on imputed rents. Therefore, since imputed rents went up far less than property values over the past five years, the fall in property taxes for these types of dwellings will not be as severe as the fall in asset prices. So the people most affected by this won't be rental buildings, but co-op and condo owners.

nyc10022 you are right, it's not too bad. i have here the numbers specific to manhattan.

http://query.nytimes.com/gst/fullpage.html?res=9906E2D81130F93BA2575AC0A9639C8B63&sec=&spon=&pagewanted=2

"So, in Manhattan, average taxes on condos were up about $2,000 to about $7,140, while co-ops were up about $1,500 to $4,900, per apartment."

so (if i don't make a mistake) the property tax increase in Manhattan (counting end of $400 rebate) is only $900 for the average condo and $750 for the average co-op. if the paper about sensitivity on prices to taxes is right, implies a less than $10k cut on the average property value. again, not a sizable impact.

Folks, I live in a two-family house in Brooklyn, and my taxes are only $2400/year currently (up from $1200/year in 2006). Taxes are the least of my worries. We lived in a single family house in Norwalk, Ct (not Darien or Greenwich!), and our taxes were $10K. I still have a ways to go before I see property taxes as a reason to jet.

sure tina, multifamily properties are taxed at much lower rates. that doesn't mean property value wise you will not see a decrease due to higher taxes on condos and co-ops.

the only explanation that made sense to me (about why the tax rate of these properties is so much lower) is that they have the most stable population, so they vote on a much higher proportion. makes sense to me.

"And with prices moving steadily upward, more such increases are likely."

so far... I don't think we've seen the end of this, not by a long shot.

BTW, 10k off the average apartment in NYC I believe is another 1% decline. That it itself won't be much, sure, but we certainly don't need it when prices are already down 20%.

This isn't going to help.

"Folks, I live in a two-family house in Brooklyn, and my taxes are only $2400/year currently (up from $1200/year in 2006). Taxes are the least of my worries. We lived in a single family house in Norwalk, Ct (not Darien or Greenwich!), and our taxes were $10K. I still have a ways to go before I see property taxes as a reason to jet."

Its not about jetting, its about the rent/buy equation.

And HIGH or LOW doesn't matter.... highER does.

NYC has always had low property taxes, and this was factored into values. It also had high income taxes, which are probably move of a factor on the moves.

But, if its priced it and goes away, prices generally adapt.

They can still be lower than anywhere else, but if the gap lessens, the relative value of the house is worth less.

nyc10022, i wonder whether expected higher property taxes in the future also has a downward effect on property values. i'm thinking again about new jersey with it's endemic deficits. it'd be hard to assess statistically as how do you measure those expectations accurately.

but my gut feeling says it should have. also laws that cap property taxes according to income and age (like the cap that passed in ny not long ago) should have a downward effect on prop values across the board, as those caps only shift the burden to the rest. if you are young and entering the RE mkt, seing that the burden is going to be shifted more to you, shouldn't you ask for a compensation?

i asked chris mayer about this (RE prof at columbia), he told me that i'm wrong. that buyers are not that rational.

The market, rent/buy equation, pricing, etc - matter most to people who are buying, selling, or otherwise trading on their equity. In my case, a 7% property tax increase will not significantly impact my monthlies. That's what I'm saying. Therefore, it won't drive me to sell. I'm not raising my tenant's rent, either. So I can live in my deflating asset and not sweat the market too much.

"Did anyone even read the article? "That would boost the annual bill of the average homeowner by $118, from $3,112 to $3,320." Does anyone think $118 per YEAR is really going to make much of a difference? nyc10022, there are better articles out there that jive with your agenda, no?"

Their desperation reeks, doesn't it? People confident that the facts match their beliefs don't need to stretch and twist the truth quite so much. Nor do they need to revert to ad hominem.

"Given we're past it, that wasn't jumping the gun, that was calling it right. You can't call it premature when its over and done with."

You treat predictions as fact, well before the data comes out. You made a good call on the drop, congrats, but you cited them as if they were already demonstrated. My point is, it's misleading precisely because it's jumping the gun.

"They can still be lower than anywhere else, but if the gap lessens, the relative value of the house is worth less."

True, but it's strange to devote an entire thread to a relative drop in the bucket. This does nothing to dispel your rep for only posting "negativity."

guys, i'm thinking about these effects on a more abstract way, not in the "buy/rent" calculation nor about speculating about homeowners having to leave the city.

i see these increases happening across USA, not only in NYC (due to unfunded pensions mostly). so for me it's relevant as a matter of policy, i'm the first one saying that it's a tiny dent in manhattan as they start from such a low base. but it is relevant for other areas, like new jersey and very cheap places in the midwest where prop taxes have nowhere to go but up and a cut of $10k is much more than 1% down.

i'm thinking about the unintended consequences of some policies, on one side we spend $ to pop up prices, on the other we increase prop taxes and that has a downward effect on prices across the board. that is interesting to me, the amount of times that policies have opposite consequences.

nerdy topic if you want, but i do find it interesting.

> You treat predictions as fact, well before the data comes out. You made a good call on the drop,
> congrats, but you cited them as if they were already demonstrated. My point is, it's misleading
> precisely because it's jumping the gun.

You are confusing prediction with reading the data. The posts I'm talking about is where I took the data out, took some new data, and did an assessment based on to calculate actuals.

That wasn't my prediction (which was well before then), that was my calculation. Not saying its perfect data, but it wasn't a guess.... it was an assessment.

And just happened to be ahead of the curve, because I knew how to read it.

> This does nothing to dispel your rep for only posting "negativity."

Was I trying to dispel any reps? Those who care about it, don't really matter to me.

I post the news... its negative these days, if you couldn't tell.

"i see these increases happening across USA, not only in NYC (due to unfunded pensions mostly). so for me it's relevant as a matter of policy, i'm the first one saying that it's a tiny dent in manhattan as they start from such a low base. but it is relevant for other areas, like new jersey and very cheap places in the midwest where prop taxes have nowhere to go but up and a cut of $10k is much more than 1% down."

Absolutely... I think this is just the beginning....

And don't forget that the changes in New Jersey can impact NYC from regional economy effects. Or even national economy effects. Hell, RE prices affected NYC prices - despite the denials - because they took down wall street.

I think we'll see similar reverbations in terms of national economy and tax policies.

New Jersey is not an island.

"Their desperation reeks, doesn't it? People confident that the facts match their beliefs don't need to stretch and twist the truth quite so much. "

You mean like exactly how you've tried to spin your buying in the bubble as a smart move? How you denied the 20% decline? How you made up numbers to support rent/buy math.

WOW are some folks in denial. Add in a shake of hypocrisy... wow.

What truth am I stretching. Manhattan is down 20%. Sales are down 75%. And factors pushing downward still at play. No need to strech... anybody with a brain or a newspapers knows what's here.

It takes a special kind of "intelligence" (or denial) to call that stretching...

"You are confusing prediction with reading the data. The posts I'm talking about is where I took the data out, took some new data, and did an assessment based on to calculate actuals.

That wasn't my prediction (which was well before then), that was my calculation. Not saying its perfect data, but it wasn't a guess.... it was an assessment.

And just happened to be ahead of the curve, because I knew how to read it."

Ah, right, we're talking about the 12% down here. My issue with that was that you kept using the report with the "worst" numbers and conveniently ignored the other two, one of which showed an increase in YTD prices. I agree the reports aren't perfect, but to present a better, more even-keeled argument, it doesn't look good to just go with the one report that most suits you.

"How you made up numbers to support rent/buy math."

You see what I mean about stretching the truth? I know you're smart enough to know better, but you stretch anyway. I won't reveal my purchase price. Doing so will result in people quickly finding my past sale on Streeteasy, which includes city filings that include my name and address.

You twist that as "made up numbers". Hardly. That's what I mean about desperation.

Property taxes are lower in NYC than elsewhere because there is an income tax.

In NYC, single-family homes pay the lowest taxes, followed by prewar co-ops, followed by co-ops, followed by condominiums. If you want to get an idea of what property taxes are for new development, go here:

http://www.indigo-21.com/pricing.html

You will see that for an 1,100 square foot apartment monthly (3E) property taxes are about $900. Add to that common charges of $1,000, and your minimum cost, if they give you an apartment for free, is about $2,000. You can rent a similar sized apartment (not as well appointed, better views and layout) across the street at 21 Chelsea for $4,100.

At today's extraordinarily low interest rate of 4.75% (APR), a $400,000 mortgage would give you monthly payments of about $2,100 for that Indigo-21 apartment. If you take out an 80% mortgage that apartment could cost no more than $500,000.

Mortgage = $2,100
RE Tax = $900
Common Charge = $1,000

Total cost = $4,000.

Unfortunately for the owner, they paid:

125 WEST 21 STREET, 3E Manhattan 3/19/2008 $1,354,272

First, why would anyone pay $1,354,272 to face a wall (which is what they face), and second, why would anyone pay so much more to own a property than they could rent it out for?

Property taxes are the least of the issues affecting us. More important is the ongoing collapse of the real estate market, and all the lost wealth.

So, tecchie, you're so proud of the unit you claim to have purchased that you won't give details on. What happens when you do this sort of math?

Oh yeah, I forgot, the income tax deduction. Under which theory if you lose your job your apartment becomes more expensive since you don't get the tax deduction.

LMAO.

Assuming your comps are right, stevejhx, that's a 27.5x price to rent ratio. That's pretty ridiculous. I agree, that property is going to come down quite a bit.

Is that the only real difference between the (moderate) bulls and bears here? We focus on the reasonably priced properties (18x) and say that looks sustainable, while you look at the ridiculously priced properties (27.5x) and say that's got to crash? If so, we could both be right...

"So, tecchie, you're so proud of the unit you claim to have purchased that you won't give details on. What happens when you do this sort of math?"

I'm not going to have this conversation again. It always goes the same way. "Do you like your purchase?" "Yes" "Prove it" "No" "I don't believe you" "I don't care". What's the point?

"Oh yeah, I forgot, the income tax deduction. Under which theory if you lose your job your apartment becomes more expensive since you don't get the tax deduction. LMAO"

Common sense? That's how taxes work, whether you like it or not.

tech_guy, those are the real figures. Those are representative of Manhattan. They are comparable units right across the street from each other.

"We focus on the reasonably priced properties (18x) and say that looks sustainable"

18x is not sustainable as a price-to-rent ratio. Anything over 15x is way overpriced. 18x is applicable if you use owners' equivalent rent, which is a different animal.

"That's how taxes work, whether you like it or not."

Which is why the tax deductions are calculated as a function of taxes.

"You twist that as "made up numbers". Hardly. That's what I mean about desperation.... You twist that as "made up numbers". Hardly. That's what I mean about desperation."

Yes, we were crazy. They aren't made up numbers, they're SECRET numbers.

ROTFL.

You have to learn what the word desparation means (and spell it correctly while you are at it).

Desparation is the guy who bought in a bubble, denies that the crash is in when the stats make it pretty clear, has no undestanding of finance but has no problem making things up to support his theory of how he's a genius, and then attacks others to try and cover it all up.

Sorry, doesn't get any more "desparate" than that.

You made a mistake, now live with it... don't try and take it out on others.

desperate / desperation, not "desparate" / "desparation"

nyc10022, that's a pretty lame post in terms of spelling.

nyc10022, just as desperate as ever (my browser has a spell check - apparently yours doesn't).

When you're smart enough to debate 18x numbers that I gave in great detail (and you ignore again and again), and stop insisting my desire for privacy has anything to do with this market, we can chat some more.

"When you're smart enough to debate 18x numbers that I gave in great detail"

I've read your numbers. They make no sense. Not historically, not based on any other ratio. You simply cannot qualify for financing under standard terms at that ratio.

You show me what theory supports your number other than "that's what I think it is." With the calculations. Not housemath.us, or calculators, or anything else. Real economic theory.

You can't. Doesn't exist.

stevejhx: "I've read your numbers ... You simply cannot qualify for financing under standard terms at that ratio."

I never mentioned income or financing. Apparently you don't read so well.

Financing qualifications, that is. Obviously you need to qualify for financing before you can do buy vs. rent math. To even bring that up shows you're missing the very basics.

maybe nobody cares about what you think. They are happy with their lives so they don't feel like they have to get your rubber stamp of approval on anything. Who TF are you anyway? An unemployed translator.

Tina and techie.... a little here, a mugging there, a lien sale here, an unemployed banker there, 0% interest rate here, complete meltdown of global economies there, $50B ponzi scheme here, people walking away from $152K deposit.... ummm I wonder where NYC RE will be in 3 years... I know I know.... CF wise it's doesn't affect you.... like when IBM used to be $100. but now trades at $2... (it's a long term hold) :)

w67th: are you on drugs? I don't think the greater economy should be your biggest concern right now...

stevejhx, aren't you "ignoring comment[s] by tech_guy and nyc10022"?

Most home purchases are financed. Standard financing is 30 years, 80%/20%, maximum 30% housing expense to gross income ratio.

The 30% housing / income ratio is exactly equal to the 40x monthly rent ratio. If you can afford to rent a property using that ratio, you should be able to afford to buy a property under those standard conditions, as you get the same thing in return - a place to live - and most properties are financed and therefore financed properties have a huge impact on prices.

Depending on interest rates and other factors (often calculated and demonstrated) that gives a price-to-rent ratio of about 12x annual rent. It can go higher under certain (low interest rate) conditions.

That is also the ratio required to break even on a purchase if you were to rent it out to an unrelated third party.

If you can afford to rent it, you should be able to afford to buy it. No rational human being would pay significantly more to rent a place to live to himself than he would to rent it to someone else.

"If you can afford to rent a property using that ratio, you should be able to afford to buy a property under those standard conditions"

I disagree. Thank you for proving my point that we disagree on too many fundamental basics for debate to be worthwhile. You're talking about qualifications, not affordability. You use those 2 words interchangeably - I disagree that they are the same.

"No rational human being would pay significantly more to rent a place to live to himself than he would to rent it to someone else."

I pay tax on rent I receive from someone else, but not rent I receive from myself. No rational human being would ignore that. I know you do, and that just helps prove my point.

"I disagree."

Then you disagree with fundamental economic theory. But that's okay.

"You're talking about qualifications, not affordability. You use those 2 words interchangeably - I disagree that they are the same."

I'm talking about what conditions you need to meet to afford a particular place to live. If you don't make 40x monthly rent (condition) you can't afford to live someplace. They are the same.

Unless you can explain to me why they are not the same.

"I pay tax on rent I receive from someone else, but not rent I receive from myself."

No one denies or ignores that (though in some places they do charge you tax on the rent you receive from yourself). It is offset by the different tax structure for investment real estate: all expenses are deductible (not just interest - principal is not an expense), it is depreciable, and capital gains taxes can be postponed forever if the gains are reinvested in another property.

Nothing you say makes sense, or has any support in any economic theory. Unless you can show me where with something other than calculations that you make up yourself.

It is becoming ever more clear that you bought at the peak of the housing boom with the last dime you had, and you're trying to convince yourself that it was a good idea. You probably used housemath.us to tell you whether it was "affordable" or not.

And stevejhx is pissed off because he just found out his degree from Phoenix University Online was really a scam. Turns out there is no such things as a B.S. Internet Website Technology.

"fundamental economic theory"

I'm reminded of Inigo Montoya in the Princess Bride. "You keep using that word. I do not think it means what you think it means."

And before anyone calls me racist, since Inigo Montoya is a Spaniard and stevejhx translates Spanish for a living (though I have no idea what his race is, nor do I care) - I meant stevejhx reminds me of Vizzini. I like Inigo Montoya too much to compare him to stevejhx.

I never thought you a racist.

Show me your source & methodology, & I'll believe you.

exit2, Columbia.

Columbia College, Chicago, Illinois

even if it were true, Columbia University - YOU'RE A TRANSLATOR! that's it.

"YOU'RE A TRANSLATOR! that's it."

What would you have me be? An investment banker?

And it is true, Columbia University.

that's like going to the Wharton School and then becoming an elementary school cafeteria worker.

No wonder you are on here giving out free advice to anyone who will listen to you.

you must relate to Cliff on Cheers a lot.

card carrying member of the Underachievers of America Union.

still waiting on that next translation job to come through?

"HOOKED ON SPANISH WORKED FOR ME"

S - O - C - K - S
!eso si que es!

exit2, have you nothing constructive to say? Just hurl insults? Because Lisa Lamponelli is much better at it than you are.

exit2, what is wrong with being a translator? What do you do for a living and where did you go to school? What makes you "special"?

The financing argument is lame, Steve, because you assume that people will only buy the maximum property they can afford. That is frequently not the case.

I agree that exit2 is going overboard, but stevejhx dishes it out just as much. A few weeks back he was making fun of me for being a software engineer, and tried to explain that translator is a step up on the totem poll.

"When you're smart enough to debate 18x numbers that I gave in great detail (and you ignore again and again), and stop insisting my desire for privacy has anything to do with this market, we can chat some more"

Wait, tech_troll is still trying to do the "the market isn't down, my made up example is proof" troll line?

Wow, what a troll....

I still love how you think its a carrot to talk to you. We're more than happy to not qualify for your "debates".

Go away...

"I still love how you think its a carrot to talk to you."

How many times have you insisted that I reveal my home address? Grasping for straws in desperation as usual.

> agree that exit2 is going overboard, but stevejhx dishes it out just as much.

nowhere near as much as tech_troll.... the guy hasn't had a fact or a bit of intelligence since he got here. But he certainly is adamant when he makes things up and confuses inflation with deflation, or suggests China put money under its mattress.

How do we make him go away? Dare I say... is it ignore button time.

Yes it is!

You tried that before nyc10022. Want me to link you the thread? I know you won't keep me on ignore. Your goal here, as you stated previously, is to push property prices down. Lets forget the fact that such a goal is laughably stupid. Its obvious that in order to do that, you need to do whatever it takes (including ad hominem and trolling) to discredit anyone speaking positively about this market.

In order to do that, you can't ignore me. So go ahead, I dare you to follow through on your empty thread. I know you won't.

It is official... the hike is in...

http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20081218/FREE/812189995/1097/newsletter01

"because you assume that people will only buy the maximum property they can afford."

I assume the norm. That is not every case, but since long-term assets are financed with long-term financing, and an 80/20 30-year mortgage just about meets the depreciation schedule (land can't be depreciated, property is depreciated over 27.5 years) that's what it must be analyzed against.

Otherwise, you have increased opportunity cost, or increased risk, which when you adjust for that premium you will get exactly an 80/20 30-year fixed-rate mortgage.

"A few weeks back he was making fun of me for being a software engineer"

Never. I used to do it myself. I believe I mentioned that in the 80's I was a RACF systems programmer. So nothing could be further from the truth.

What I said is you should stick to it.

exit2... what's your made up achievement? techie... I'll get to you after the kids r aslp....