As 2024 dwindles down, we look forward to the upcoming year and wonder what to expect in 2025 for residential real estate in New York City, particularly for cooperative and condominium apartments. Looking ahead, 2025 may be a hard year for residential cooperative and condominium owners and managers.
There appear to be five trends that are emerging on the horizon: 1) pressure, including fines and taxes, from the government at all levels, on residential buildings to reduce their respective carbon footprints; 2) rising property taxes; 3) reduction in public services; 4) possible erosion of the city-wide income tax base and 5) the need for additional affordable housing and associated services, including schools, parks and libraries.
Local Law 97 of 2019 is now impacting residential cooperatives and condominiums. The property tax penalties for “excess” energy use are becoming real. Buildings are looking at significant property tax increases over the next three years. Recently, I read a report on an Upper East Side building that suggests the building would absorb an additional half million dollars in property taxes during that period. Nothing could be more counterproductive. These buildings need to assess unit owners for energy efficiency improvements; instead, the money is going directly to the government.
Fines and penalties for energy inefficiency are an addition to the anticipated property tax increases for cooperative and condominium buildings, most of which are already over-taxed. This is due to the expected drop in value for commercial properties, particularly for “B” and “C” class commercial buildings. The city will need to make up the lost revenues and, historically, Manhattan condominiums and cooperative apartments have been targeted.
The pressure may be amplified for pre-1974 buildings, as they will likely see significant tax increases because of the current differential treatment of pre- and post-1974 cooperative and condominium buildings. The former are taxed at a reduced rate based on the use of rent-controlled units for comparables. At the same time, the latter has a market rate of stabilized units for comparison, leading to significantly higher property taxes and disparate impacts in minority neighborhoods.
Over the last two years, city services, including recreational facilities and libraries, have been reduced to allocate money to pay for the mass influx of undocumented immigrants. Much as the city council would like to reverse this trend, there is simply no money, and property tax revenues are likely to fall for the reasons noted above.
The Citizen’s Budget Commission is warning that the service reductions may motivate some to relocate out of the city. Many businesses now allow workers to report to offices only two to three days per week, so relocating to distant locations with lower taxes becomes easier. Many young families also leave the city for distant suburbs with better public schools and services.
The best outcome would be for the New York State Legislature to craft a new property tax system. Single-family homeowners pay a fraction of the property tax paid by cooperative and condominium unit owners for properties with similar values. Moreover, cooperative and condominium unit owners do not receive city refuse or recycling services.
Two solutions appear obvious. The first is to create one tax rate and apply it to all residential property based on fair market value. This would include not valuing cooperative and condominium units based on rental values, and simply using sale values. As for the second solution, single-family homes should be charged for refuse and recycling services.
Finally, the city has an overwhelming need for affordable housing, that is, housing for those of moderate incomes, including police officers, firefighters, teachers, public health professionals, librarians and other professionals, many of whom are public sector employees. I hope this will encourage innovation and development, including the repurposing of older and underutilized commercial properties, into housing and community facilities. These facilities could include schools and recreational areas, which are essential for a good quality of life in the city.
For owners and managers of residential cooperatives and condominium units, this is mixed news. The housing shortage should help keep prices stable, but rising costs and property taxes may provide countervailing downward pressures.
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
