
Why NYC Rent Is So High (It’s Not Airbnb) - maratd
https://professional-troublemaker.com/2016/07/19/why-nyc-rent-is-so-high-its-not-airbnb/
======
vostok
> But in New York City, you owe the city between 10.6% and 20.0% of your
> property’s assessed value, every year.

> Let’s put this in perspective. In the very residential and fairly affordable
> (for Manhattan) East Village, a pre war, 5-story, apartment building with 15
> 1-bedroom units and a storefront may have a market value of about $5M.
> “Assessed values” tend to be lower than actual market values (both in NYC
> and most other cities), so you might end up with an assessed value of half
> the actual value, or $2.5M.

The author of this article is highly misinformed. The assessed value of a
property is often well under 50% of the market value.

I know someone who recently bought a place for just over $7.5m, but the
assessed value is under $500k. This property does not have any abatements.

The exact tax rules are somewhat complicated and involve the interaction
between rules on assessment ratios, caps on assessed value increases, fair
market value models, transitional assessed values, tax rates, abatements, and
probably a few other things that I missed.

~~~
tsaoutourpants
Author here. I've updated the post to reflect that the assessed value for
apartment buildings (more than 3 units) is exactly 45% of market value. It is
not "well under" 50% for any standard apartment building... it is exactly 45%
by law.

More info: [http://www1.nyc.gov/site/finance/taxes/property-
determining-...](http://www1.nyc.gov/site/finance/taxes/property-determining-
your-assessed-value.page)

~~~
vostok
> Author here. I've updated the post to reflect that the assessed value for
> apartment buildings (more than 3 units) is exactly 45% of market value. It
> is not "well under" 50% for any standard apartment building... it is exactly
> 45% by law.

This is still not completely accurate. Read the section about transitional
assessed values and maximum assessed value increases.

~~~
adamscj
It looks like most private residencies have an assessed value of 6%, not 45%

Tax Class: Property in NYC is divided into 4 classes:

Class 1: Most residential property of up to three units (family homes and
small stores or offices with one or two apartments attached), and most
condominiums that are not more than three stories. Class 2: All other property
that is not in Class 1 and is primarily residential (rentals, cooperatives and
condominiums). Class 2 includes: Sub-Class 2a (4 - 6 unit rental building);
Sub-Class 2b (7 - 10 unit rental building); Sub-Class 2c (2 - 10 unit
cooperative or condominium); and Class 2 (11 units or more). Class 3: Most
utility property. Class 4: All commercial and industrial properties, such as
office, retail, factory buildings and all other properties not included in tax
classes 1, 2 or 3.

[https://www1.nyc.gov/site/finance/taxes/definitions-of-
prope...](https://www1.nyc.gov/site/finance/taxes/definitions-of-property-
assessment-terms.page)

~~~
bradleyjg
What makes you think that most private residences in NYC are in buildings with
up to three units?

------
mikeryan
Note California Property Taxes are abnormally low due to Prop 13.

More importantly there seems to be a disconnect on the rate here and the way
assessesd taxable values get calculated here

[https://www1.nyc.gov/site/finance/taxes/property-
calculating...](https://www1.nyc.gov/site/finance/taxes/property-calculating-
your-annual-tax-blll.page)

In general it looks like a standard Class 1 home gets an assessed value of 6%
of market value, some classes end up at 45% market value. My quick read says
anything higher then 3 stories would be at the 45% rate which seems like most
of Manhattan living?

According to that page a home with a value of $450,000 ends up with a tax of
$4,705.88 which is about %1.

That being said the calculation is complex and I don't completely grok it.

~~~
bradleyjg
Class 1 properties (residential properties with 1-3 units) pay considerably
lower rates than Class 2 properties (all other residential properties). Which
doesn't make a whole lot of sense, because the poorest people in the city live
in big apartment buildings and many of the wealthiest people in the city live
in single family town homes. Of the wealthiest people that don't live in
single family homes, many live in new construction trophy condos that have
multi-decade tax abatements. Even when they come out of tax abatement status,
the law requires fair market value for condo/co-op buildings to be calculated
by finding a comparable rental building which is impossible for the high end
of the market.

Almost every aspect of the NYC property tax regime is regressive. We also have
a progressive income tax and a regressive sales tax. I wonder whether or not
the system as a whole is progressive or regressive.

~~~
vostok
> the poorest people in the city live in big apartment buildings

The poorest people live in rent regulated or subsidized housing so this
discussion is not relevant to their situation.

> Which doesn't make a whole lot of sense, because the poorest people in the
> city live in big apartment buildings and many of the wealthiest people in
> the city live in single family town homes.

My experience is that the wealthy in NY prefer apartment buildings to
townhouses.

~~~
mikeryan
More importantly the poorest people aren't buying - they're renting so the
whole property tax issue is moot.

~~~
epistasis
The cost of property taxes gets reflected in the market prices of rents.

------
natrius
Property taxes don't affect your rent by forcing your landlord to increase
prices. Your landlord can only increase prices if someone is willing to pay
that increased price. Property tax rates don't affect people's ability to pay
rent.

Property taxes do affect how profitable it is to build more homes. The higher
the taxes, the fewer homes will be built. That's what leads to higher rent as
demand increases. To avoid that effect, jurisdictions can try to tax just the
value of the land rather than the value of the homes built.

[http://www.economist.com/blogs/economist-
explains/2014/11/ec...](http://www.economist.com/blogs/economist-
explains/2014/11/economist-explains-0)

------
tomweingarten
This doesn't seem right to me. I own an apartment in a six story co-op in NYC
and pay < 1% of the market value in property tax every year.

Not sure where the discrepancy comes in though. According to this site, the
effective property tax rate in NYC is much lower than listed in the article:
[https://smartasset.com/taxes/new-york-property-tax-
calculato...](https://smartasset.com/taxes/new-york-property-tax-calculator)

There are also a lot of tax credit programs that the article does not mention:
[https://www.tax.ny.gov/pit/property/exemption/index.htm](https://www.tax.ny.gov/pit/property/exemption/index.htm)

My property is my primary residence, I don't rent it out, so maybe that
explains the discrepancy? But I find it difficult to believe that if there is
that much of a difference that landlords are making any profit at all, and I'm
quite certain they're not doing it out of the kindness of their hearts :)

------
forrestthewoods
"In the very residential and fairly affordable (for Manhattan) East Village, a
pre-war, 5-story, apartment building with 15 1-bedroom units and a storefront
may have a market value of about $5M. [...] You might end up with an assessed
value of half the actual value, or $2.5M. That building would likely be
subject to the Class 2 tax rate of 12.9%, meaning $322,500 in taxes every
year. A typical apartment in these buildings may be $2,500 monthly, and a
typical storefront may be $10,000 monthly, making annual rent revenue
$570,000. In this scenario, 56.6% of your rent money goes to the city in
taxes, and that’s in addition to the NYC income tax of up to 3.876%, NYS
income tax of up to 8.82%, sales tax on everything you buy of 8.875%, and
other hidden taxes like the MTA tax on every taxi ride you take."

Holy shit. That's insane. That should be criminal.

~~~
imsofuture
Why would it be criminal? The general principle of high taxes in an extremely
dense urban area seems fine. All the services and infrastructure cost quite a
lot.

~~~
tsaoutourpants
Author here. That's the kicker: it's not like we don't have to pay for out
subway rides. It's not like the bridge tolls and gas prices (which are
affected by tax rates) are not astronomical if you drive. And as mentioned, a
transit surcharge is applied to taxi rides.

It truly begs the question: what are we getting for our taxes?

~~~
zzzeek
> are not astronomical if you drive.

driving in the city adds an enormous cost to the city overall. road wear,
traffic signals, air and noise pollution, decreased mobility of cabs, trucks,
and emergency vehicles due to traffic jams, crashes and bike/pedestrian
injuries, etc. I drive as well but it's entirely fair that drivers should have
an increased tax burden in dense urban areas.

> It truly begs the question: what are we getting for our taxes?

thankfully you don't need to beg at all, a complete and accurate answer to
this question is available to you:
[http://www1.nyc.gov/site/omb/publications/finplan06-16.page](http://www1.nyc.gov/site/omb/publications/finplan06-16.page)

------
PaulHoule
The NYC Hotel industry also has an unusual alliance between the hoteliers and
the unions.

In places like San Francisco you regularly see strikes outside Hotels where
people are chanting "Don't check in, check out!"

In NYC business is good enough that the hoteliers (Republicans) and the unions
(Democrats) agree to get along so politically the opposition to things like
AirBNB is united.

~~~
geebee
Interesting angle. Funding for prop F in SF (which would have placed tighter
restrictions on airbnb) largely came from the hotel unions and affordable
housing advocates, not the hoteliers themselves.

[http://www.businessinsider.com/airbnb-spends-8-million-
again...](http://www.businessinsider.com/airbnb-spends-8-million-against-
prop-f-2015-9)

I wonder if these are somehow connected, interesting to think about. It might
also explain the huge gap in funding on the measure.

It'd be interesting to see if this were the case for a similar measure in NYC.

~~~
spoonie
My rental agreement (in a 4-storey apartment building) in SF forbids me from
subletting (without consent), or from having overnight guests for more than N
days a year. Are most other rental agreements more lax or do many Airbnb hosts
operate in violation of their contracts?

------
danohu
Theoretically, this shouldn't affect rental prices.

Demand is dictated by the number/wealth/desperation of people wanting to rent
in NY. Supply is more-or-less constant (except for new-build, which is
excluded from this).

So this doesn't affect rental prices, just moves money from the landlord's
pocket into the city government. Sounds like a good idea to me.

~~~
bradleyjg
That might be true if they weren't distortionary. But because they are
dramatically different for renters and owners they distort behavior and so
would be expected to affect rental prices.

------
Finnucane
Just for laughs, you can find information on any Class 2 building in New York
City here:

[https://www1.nyc.gov/assets/finance/jump/property-data-
maps/...](https://www1.nyc.gov/assets/finance/jump/property-data-
maps/tc2map_mh0201.html)

and then look up the tax bill for it here:

[http://www.propertyshark.com/mason/info/Property-
Taxes/NY/Ne...](http://www.propertyshark.com/mason/info/Property-Taxes/NY/New-
York-City/#Search)

It doesn't take too much poking around to see that this guy has overstated his
case.

(P.S., though I would agree that generous abatements for the benefit of condos
for wealthy investors is rather unfair)

------
krschultz
This is some seriously lax research. Property tax rates in New York City are
very complicated. If the phrase 'tax class' doesn't come into the article you
can safely discard it as nonsense.

[http://newyorkyimby.com/2015/06/why-new-yorks-property-
taxes...](http://newyorkyimby.com/2015/06/why-new-yorks-property-taxes-punish-
mid-size-landlords-and-poor-renters.html)

[http://commongroundnyc.org/nicemess.htm](http://commongroundnyc.org/nicemess.htm)

~~~
maratd
> If the phrase 'tax class' doesn't come into the article you can safely
> discard it as nonsense.

Did you even read the article? Direct quote:

"That building would likely be subject to the Class 2 tax rate"

And the article even links directly to the class breakdowns on the government
website.

~~~
krschultz
That was added _after_ the negative reaction in HN & Reddit responses. The
author was basically scrambling in real time to address the comments here. Not
exactly a sign they are an expert on the matter. My comment was written before
the article added that information and I stand by it.

~~~
maratd
> That was added after the negative reaction in HN & Reddit responses.

It was there before I posted it to HN, although the author did modify the
article after it was posted.

------
JoelBennett
So why are the taxes so high?

I can understand that having a higher population density would require
potentially more resources, but I wouldn't think that would be a linear
relationship. For example, an apartment building with 15 people in it does
require more in terms of water and sewage treatment, but it doesn't require a
15x increase in roads when compared to building just a single house.

~~~
untilHellbanned
I base this on no knowledge other than basic facts about human pyschology:

It's because they can.

------
yolesaber
> If you like the thrill of gunshots on your way to work, Chicago’s tax rate
> is 1.86%.

For the record I live in NYC and there were gunshots Sunday morning a block
from my house

~~~
tsaoutourpants
Author here. The murder rate in Chicago is about 3.5x that of NYC...

[https://en.wikipedia.org/wiki/List_of_United_States_cities_b...](https://en.wikipedia.org/wiki/List_of_United_States_cities_by_crime_rate_\(2014\))

Anyway, the point was not which city was safer, but that compared to virtually
any major city in the U.S., New York's tax rates are several times higher.

~~~
ghostly_s
You're casually implying that the tradeoff for the more affordable rent in
Chicago is a greater likelihood of being the victim of gun violence. While it
is a major problem, that's not the nature of gun violence here. It is highly
localized to communities below the poverty level. If you're willing to
casually and irresponsibly reduce the Chicago gun violence issue to a flip
claim like this, then I have little faith in your ability to faithfully
summarize the taxation situation (which seems to be a correct deduction based
on the holes everyone is pointing out here.)

------
mikehines
Have you been to San Francisco?

------
jack_quack
Without reading the article, isn't the answer always supply and demand?

~~~
thegayngler
Reading is your friend. 56% of the income generated from renting in an old
building goes to taxes. That's scary high.

~~~
toomuchtodo
Or, conversely, its better that the city is extracting those taxes for
services instead of it being straight profit for landlords. Lowering taxes
would not lower rent charged, it'd just be more money in the pocket of
landlords.

~~~
lintiness
if taxes were lower, it's possible landlords would rent for less to make the
same marginal dollar.

