By Brad Lander – Lead-in by Scott Baker

New York City’s Comptroller Brad Lander is out with a new report on how condos and co-ops are compared with rental buildings. While comparable buildings are selected by law, the fact is, according to Lander, that most rentals are rent-stabilized (some are even more restricted by rent control), so the value of the buildings selected are much less than the condos and co-ops that are not rent-stabilized.

Lander writes:

The New York State Real Property Tax Law (RPTL §581) requires that:

“Real property owned or leased by a cooperative corporation or on a condominium basis shall be assessed […] at a sum not exceeding the assessment which would be placed upon such parcel were the parcel not owned or leased by a cooperative corporation or on a condominium basis.”

In practice this means that cooperatives and condominiums in New York City are assessed as if they were rental buildings, hypothetically. To this end, the New York City Department of Finance (DOF) selects “comparable rentals” for cooperatives and condominiums with more than 10 units within Class 2, from which their DOF market values are derived.

In this fiscal note we answer three questions:

  1. What is a comparable rental? It is a rental building that is matched based on location, age, and other parameters to a cooperative or condominium. The DOF market value assigned to the rental building informs the DOF market value of the cooperative or condominium it is matched to. The analysis shows that:
    1. The minority of rental apartments in buildings with six or more units is market rate, which limits DOF’s flexibility in the matching stage and lowers valuations in the aggregate.
    2. In the data published by DOF, there are more cooperatives and condominiums than comparable rental buildings. Therefore, the same comparable can be used in multiple matches.
  2. What do the DOF data on comparable rentals show? The matching and valuation formulas are part of the Computer Assisted Mass Appraisal (CAMA) software contracted by DOF and, as such, “proprietary”.[1] Assessors have discretion to select alternative matches, to override the CAMA matches altogether, and to choose values outside of the range of the selected set of matches. For these reasons, we could only perform a descriptive analysis, with the following takeaways:
    1. Relative to the average DOF market value of each comparable rental, DOF tends to overvalue low-value cooperatives and condominiums and undervalue high-value ones.
    2. More than one quarter of cooperatives and condominiums is assigned a value outside of the range of their comparable rentals.
    3. Cooperatives and condominiums in Manhattan South of 96th Street (“Manhattan core”) tend to have a higher DOF market value than those in the rest of the City. However, properties in the Manhattan core that surround Central Park, which command some of the highest transaction prices, are on average not found at the top of the DOF market value distribution.
  3. How does DOF market value compare to actual sale prices? Valuing cooperatives and condominiums as hypothetical rental buildings (as mandated by State law) results in discrepancies with actual sale prices. However, valuations need not be regressive if comparable buildings exist. Our analysis shows that:
    1. DOF captures only a fraction of sale prices and that the fraction decreases as sale prices increase. In other words, DOF valuations are regressive. These results confirm previous analysis from the Independent Budget Office (2006) Twenty-Five Years After S7000A: How Property Tax Burdens Have Shifted in New York City, and the NYC Advisory Commission on Property Tax Reform (2020) Preliminary Report and (2021) Final Report.
    2. Even if DOF could perfectly match the highest-valued comparable rentals to the highest-priced cooperatives and condominiums, regressivity could be alleviated but not eliminated. That is, the constraint imposed by RPTL §581 are intrinsically regressive.

Without valid comparables, condos and co-ops, especially on the high end, will always be under-taxed. Lander does not seek to create a two-rate system here, as Georgists advocate, but his report does show the need for it. It would be easier to compare plots of land instead of buildings and units, which can vary enormously in value. Land in an urban location is valued by location, and this is not alterable by construction forces. Buildings can be built to be affordable, or marketed to the wealthy. The new Netflix show “Owning Manhattan” which focuses on the brokers of the ultra high end firm Serhant, shows the marketing muscle brought to bear to sell a $250 million penthouse in posh midtown Manhattan. While no unit in the building, or nearby neighborhood, would ever be cheap, some might list for 1/10th the price, or 1/20th, well within walking distance. The land underneath them would be similarly valued, however, averaging out equitably. Lower end condos or co-ops, or rentals, would become cheaper, with taxes going to the city instead of mortgage payments to the bank, for the cost of location.

Read the rest here: https://comptroller.nyc.gov/reports/fiscal-note-comparable-rentals/

In keeping with the critical lack of affordable housing in New York City, Manhattan Borough president Mark Levine has come out with a new report too, this one on how and where to create new housing opportunities, by changing zoning, parking, and other requirements, aligning but also extending mayor Eric Adams new City of Yes housing proposals. Levine writes:

An Historic Affordability Crisis
New York is a 21st-century city with a zoning code that largely dates from 1961. In that year, the last
in which there was a comprehensive overhaul of our land use rules, the car was king, population was
declining, and some experts actually worried the city had too much housing.
The New York of 2024 is a very different place. Today we are experiencing intense demand for housing,
a severe shortage of supply, and an anemic rate of production. The direct result of these trends is
catastrophically high rents that threaten to upturn the lives of a whole generation of New Yorkers.
There are many causes for our current predicament. Some are tied to national economic forces
beyond our control. But arguably our biggest obstacle is entirely home grown: a zoning code from 1961
that makes it far too difficult for us to build the housing New Yorkers desperately need.
Our current zoning code makes it hard to convert vacant office buildings to residences. It prioritizes
construction of parking over apartments. It leaves little housing next to some transit hubs and
prevents apartments from being built on top of stores in some commercial districts. And worst of all:
It does too little to ensure construction of affordable homes.
In the face of such obstacles, we are producing far less housing than other cities. New units permitted
per 1,000 residents (between 2017 and 2021). 1

  • Jersey City: 83
  • Seattle: 67
  • Washington, DC: 43
  • Boston: 28
  • New York: 13
    Meanwhile employment growth continues to far outpace housing growth here.2
    The resulting housing shortage has been great for landlords. The vacancy rate in New York City is
    now at just 1.4%, the lowest in half a century. Demand for housing here is so intense—and supply so
    restricted—that we are seeing bidding wars on rental apartments. Rents in Manhattan have been
    pushed up to unprecedented heights, now at over $5,000 per month on average for market-rate units.

Read the rest here: https://www.manhattanbp.nyc.gov/wp-content/uploads/2024/07/COY-Housing-Report-V6.pdf

Common Ground New York has joined the New York Housing Conference, along with about 100 other similarly focused organizations, in supporting the City of Yes proposals.

We also sent in a slightly modified letter of support, introducing legislators to our unique solution (last paragraph. We were limited to 500 words):

7/9/24

Dan Garodnick
Chair, City Planning Commission
120 Broadway
New York, NY 10271

Subject: Letter of support for City of Yes for Housing Opportunity

Dear Chair Garodnick,

On behalf of Common Ground-New York, I am writing to express support for the NYC Department of City Planning’s proposed City of Yes for Housing Opportunity (COYHO) zoning text amendment.

New York City stands at a pivotal intersection of two pressing challenges: the climate crisis and the housing crisis. Currently, the city’s zoning regulations often act as a barrier to reducing our city’s greenhouse gas emissions and addressing the pressing need for denser, more affordable housing throughout New York City. COYHO will serve a dual purpose: mitigating the impacts of climate change and improving housing accessibility and affordability for New Yorkers.

Common Ground-New York supports COYHO because building more housing throughout the City will alleviate the City’s housing shortage while promoting efficient land uses, which reduces urban sprawl. Denser housing also encourages the use of public transportation, walking, and cycling, lowering overall emissions from private vehicles. Moreover, distributing new housing options across all neighborhoods fosters economic and social equity, preventing the concentration of pollution and environmental burdens in marginalized communities. This approach ensures that everyone has access to healthier living environments and opportunities for sustainable living.

Common Ground-New York urges the City Planning Commission to vote in favor of COYHO. Approving COYHO will not only address the city’s housing crisis but also promote a healthier and more sustainable New York City for all its residents.

In addition, we recommend a tax shift to land values and away from building values. This Georgist idea is tried & proven and would encourage development of taxed land to its fullest and best use by untaxing buildings.
Several examples of under-used land may be found on our website: https://commongroundnyc.org/

Sincerely,

Scott Baker, President, Common Ground-New York

New York City’s housing challenges are uniquely bad and the worst in decades, but the Land Value Tax solution has been tried and proven not just in New York City, but all over the country and world, and it can work again.