The New York City property tax system is broken. The systemic intended bias, partial to outer borough single-family homes and pre-1973 cooperative and condominium units, has created chaos as befits a governmental policy of irrational favoritism. Here, not only is the law actively biased, but the manner of implementation by the city has made the situation worse.
A challenge is being brought by Tax Equity Now NY LLC (TENNY), a progressive group seeking tax equity for people of color in multifamily rental buildings. TENNY claims the New York City prop- erty tax system unfairly penalizes people of color. The NYC property tax system penalizes anyone who is not the owner of a single-family home or a pre-1973 cooperative or condominium unit.
The Office of the New York City Comptroller reports that there are about two million rentals and owner-occupied apartments in the city. Of all households in New York City, 69% are renters, with about half of them in some type of subsidized housing. About 30% of the apartments in the city are co-op or condo units, divided around three to one in favor of co-op apartments. Another 17% of New York households reside in single-family homes. From a voting perspective, there are far more renters than residents of single-family homes. Indeed, it appears there are now more residents of co-op and condo apartments than single-family homes.
In its challenge, TENNY has compared the prop- erty taxes on rent-stabilized and rent-controlled apartment buildings with pre-1973 co-op and condo apartments and single-family homes. Unsurprisingly, the single-family homes are substantially undertaxed by that metric. Similarly, the old co-ops, including those located on Park Avenue and Fifth Avenue in the old “Silk Stocking” district, are also treated more favorably than post-1973 co-op and condo buildings. This bias is based on the inclusion of rent control and rent-stabilized units in the comparison basket for co-ops and condos but not for post-1973 co-ops and condos.
TENNY has challenged this latter implementation bias. It maintains that allowing luxury condo and co-op apartments to use a metric that includes rent-controlled units (of which there are only about 17,000 left out of about two million apartments) and rent-stabilized units is improper.
TENNY believes that only affordable housing buildings should be using subsidized rents in the calculation and proposes altering the bias in the system in favor of those they want to see benefit, rather than cleaning up the entire mess.
While TENNY maintains that residents of affordable housing units in neighborhoods of color are the most overtaxed, it seems likely that the co- op shareholders and condo owners in post-1973 buildings in Manhattan are in that group as well. A $2 million apartment in a post-1973 co-op or condo building is paying $20,000 or more in property taxes annually. The same valued single-family home pays about $5,000-6,000 per year in property taxes. There is no rationale for the difference.
The quirks in the system go further. The city blithely increases the taxes on Class 3 properties, which belong to utilities. All property taxes charged to utilities are passed on to the ratepayers. So, the idea that Con Edison or Verizon are paying more taxes is a fiction. You are the one paying more taxes.
The property tax situation in New York City is likely to worsen, at least in the short term. The demand for office space has dropped. Many office buildings are virtually empty, and the banks have assumed control of the property pre-foreclosure or pre-default. Retail spaces are vacant as more shopping has moved online. Certain restaurant spaces have also been adversely affected by the hybrid work model. This leaves only residential property to pick up the slack on property tax.
No doubt, the city will look to increase taxes on the already overburdened post-1973 co-op and condo units. And as the post-1973 cooperative and con- dominium buildings age, they will need more maintenance. If the maintenance costs rise and the property taxes continue to increase, these units will lose value based on excess operating costs.
What are the city’s co-op and condo boards doing about this issue? For years, they have passively accepted the excess taxes. Managing agents have not encouraged efforts to address the issue, either. However, unless the boards in the post-1973 co- operative and condominium units are heard, the politicians are likely to try and continue to shift property tax burdens on this small percentage of property owners.
This column presents a general discussion. This column does not provide legal advice. Please consult your attorney for specific legal advice.
Carol A. Sigmond
Partner
Greenspoon Marder LLP
1345 Avenue of the Americas, Suite 2200
New York, NY 10105
carol.sigmond@gmlaw.com
(212)524-5074
