Why Real Estate Taxes Are a Tangled Mess

A February 28 joint report by City & State, a website, and WPIX-11, a New York television news operation, reported that Mayor Bill de Blasio, whose home in Park Slope is valued at $1.4 million, was assessed $2,894 in property taxes in 2014. In nearby Borough Park, a similarly valued home was assessed $15,023 in property taxes – five times what the mayor was assessed.

The explanation? Since the Borough Park home has been appreciating more slowly than the mayor’s home in Park Slope, its tax assessments “were able to keep closer pace with the increase in value” in that neighborhood, says Doug Turetsky, a spokesman for the Independent Budget Office, a publicly funded agency that provides nonpartisan information about New York City’s budget to the public. “The property tax system was able to capture far more of the [market value] increase in Borough Park into the assessment, whereas in Park Slope the values went up so fast, the [tax] caps prevented it from being captured.”

A 2013 Citizens Budget Commission report also illustrated this problem. For example, the average benefit that owners of one- to three-family homes in Greenwich Village get from the assessment cap is between $32,000 and $39,000, in a neighborhood where the median household income is $105,000 for all residents and $200,000 for homeowners. In Queens Village, by comparison, the average assessment cap benefit was $394, where median income is $74,000 for all residents and $80,000 for homeowners. In rapidly appreciating Williamsburg/Greenpoint, the tax benefit is $4,080, where the median income is $50,000 for all residents and $67,000 for homeowners.

Meanwhile, efforts to offset the disparities in the tax system – the co-op and condo tax abatement, the now-defunct 421-a tax abatement for residential real estate developers, as well as the Industrial and Commercial Abatement Program for commercial properties – have introduced distortions of their own.

When the co-op and condo tax abatement was created, it brought tax relief in line with Class 1 homeowners. But today, that relief has turned into a bonanza for many of the city’s wealthiest co-op and condo owners. Because of the way the Department of Finance (DOF) values co-op and condo buildings – by comparing their market value to rental buildings in the area – many of these buildings have been undervalued, according to James Parrott, deputy director and chief economist for the Fiscal Policy Institute (FPI), an independent, nonpartisan, nonprofit research and education organization. In fact, a number of units in these co-ops and condos have actually sold for more than the DOF’s estimated value of the entire building.

Backing up this point is a 2012 report prepared by New York University’s Furman Center, a research partnership between the NYU School of Law and the Robert F. Wagner Graduate School of Public Service. It presented a list of 50 individual co-op and condo unit sales where the selling price of each unit exceeded the DOF’s estimated market value for the entire building. In the case of one 15-unit Upper East Side co-op, one apartment sold for $54 million, while the entire building was valued at $41 million.

The rich do, indeed, keep getting richer. New York City’s tangled system of assessing real estate taxes are a big reason why.