Is the Rent Too Damn High ... Because of Property Taxes?

Monday, June 16, 2014

Ernest Robinson is one of the plaintiffs suing the city, alleging the property tax system is discriminatory (Jessica Gould/WNYC)

The ideal of home ownership runs through American history like a white picket fence. And that preference is reflected in New York City’s property tax system too. Now two renters are suing the city saying the system is discriminatory.

One, two, and three family homes generally get the best deal under the current property tax system, and apartment buildings tend to pay pay a higher effective tax rate. Meanwhile, New York City's complex method for assessing taxes tends to undervalue condos and co-ops compared to rentals and that often results in rental properties shouldering a bigger share of the tax burden.

The Furman Center for Real Estate and Urban Policy notes that renters in larger apartment buildings are also more likely to be black and Hispanic and live in poverty compared to the owners of condos and coops. Tenants don’t pay taxes directly, but real estate analysts estimate a portion of their rent pays the building’s taxes. The plaintiffs in the lawsuit, Rosa Rodriguez and Ernest Robinson, argue that means the way the system treats rental properties violates the Fair Housing Act.

"The injustice stirs feelings in you, it makes you angry. It's very frustrating because it's hard already," said Rodriguez, a single mom from Queens who's Hispanic.

"It's something a lot of New Yorkers have no idea about," said Robinson, who lives in the Bronx and is black. "If they truly knew we would have a full-scale riot on our hands."

But property taxes are the city’s largest and most stable revenue source so lowering them for rentals could take a big bite out of the budget which is already facing billion-dollar deficits over the next few years.

Of course, homeowners could pay more to even things out, but Charles Brecher of the Citizens Budget Commission says that would also be unpopular.

"Property tax bills are much more visible for homeowners," Brecher said. "They either get the bill directly, or it’s reflected in the mortgage payment to the bank. And so the visibility...makes it harder for elected officials to raise taxes on homeowners."

Furthermore, if the system did change, there’s no guarantee that landlords with lower taxes would actually pass the savings on to renters.

The city is scheduled to respond to the suit later this summer.


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Comments [8]

Business Watch from Williamsburg

Talk about hitting the nail on the head-it is the same with retail renters...ask most small (mom & pop small) businesses why they're going out & they'll say rising rents. Is it the greed of property owners??? OR is the city driving out small business because it has raised property taxes to the max?...It becomes a matter of pass along owners are getting hit with increased real estate taxes...water taxes...etc...
When the rents go assumes the nabe is sooo much better & draws in customers that can pay more for higher end goods...NOT SO...
Some areas may be improving but the customer base is the the profit has not changed and the stores can't afford the increases...Here is a suggestion...why not put a moratorium on property tax increases in established RETAIL STRIPS...BIDS ETC...KEEP SMALL BUSINESSES THRIVING...AND ALLOW PROPERTY OWNERS TO KEEP THE BUILDINGS THEY WANT...without pushing out good tenants because of the city taxes. Help existing business before concentrating on new ones who'll face the same problem.

Jun. 23 2014 12:06 PM
Formerly NYC from VA

Costs (including taxes) are, in part, paid on to end users precisely because they affect supply. A left shift of the supply curve raises prices and reduces the quantity supplied. Econ. 101. Who among the landlord, renters and other stakeholders bears what exactly share of an increase in costs depends on various factors, but it is simply wrong to assume that costs come entirely out of profit.

Jun. 20 2014 02:47 PM
Dana Eisenberg from Jersey City

Real Estate taxes have very little to no impact on rent. Rent is determined by the supply and demand for rental units. Property taxes only influence the price of the building when it it sold/purchased. If a landlord's tax bill went up $10k for a building with 5 units, he can't just raise rents by $2k because people won't pay the extra rent when they can move somewhere else. If you want to reduce rent and raise tax revenue... build more units across the spectrum (low and middle income) and/or incentivize owners to replace low rises with mid rises.

Jun. 19 2014 09:26 AM
TOM, the Economic NYC Man from Brooklyn

Why would the City go through all that work without coming up better(revenues enhanced) for it?

Jun. 16 2014 09:48 PM

Undervaluation is the epitome of corruption.

I understand that NJ taxes are 3x higher than NYC per $ of property value.

But if property values swing wildly ( as they have done in almost every area except for NYC and DC in the past 15 yrs, where values only rise), and valuation is accurate, it does make budgeting an impossible task.

Jun. 16 2014 05:56 PM
Barbara from Brooklyn

One and 2 family homes have had steadily increasing TAX RATEs under Bloomberg. The rate is now over 19% of the assessment. We've lived in our house for 35 years. Because it's in a neighborhood in Brooklyn which has seen an increase in, the market rate ours has increased like crazy. My husband and I are retirees and our taxes have just increased $1000 in just one year!

Jun. 16 2014 11:11 AM
B from Manhattan

The only quibble I have with this report is that it doesn't place enough focus on the TRUE disparity in the current tax system. Class 1 owners benefit the most of anyone under the current system. Look at a typical Sunday NY Times real estate section and glance at any brownstone apt or single family home available for sale in the five boroughs. If you examine the annual tax bill vs. the asking price and you will see how DRAMATICALLY undervalued and thus unfairly under-taxed these types of properties are. Larger coop building owners have seen a dramatic increase in their maintenance bills over the past 5-6 years, largely driven by property taxes. Class 1 owners haven't felt the same degree of pain since their tax bills have been abnormally low for a long time and the current tax rules limit the annual rate of increase they must endure.

Jun. 16 2014 10:18 AM
Haveanonther1 from NYC

This is like saying that sports events tickets are expensive because the athletes' salaries are too high. Wrong culprit. Aside from rent regulated apartments (another topic), rents are set at the price that markets will bear. Taxes, and other items in the cost structure, only affect the owners' profit margin.

Jun. 16 2014 08:38 AM

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