REBNY strongly supports data-driven policies that will spur housing construction, create good jobs, and house New Yorkers. Thank you to the City Council for the opportunity to testify on the review of recommendations regarding New York’s property tax system.
REBNY looks forward to partnering with the City Council to improve the property tax system. As a REBNY report found, real estate related taxes are the single largest contributor to the City’s tax based and have accounted for more than 50% of City Tax Collections for eight consecutive years. Real estate related taxes are expected to play an even more important role in the coming years, with projections for FY2023 estimating a one-billion-dollar increase in real estate related tax collections.
New York City’s current property tax system is not structured to meet the City’s current challenges and requires reform. As we emerge from the upheaval of the COVID-19 pandemic and the related economic downturn, our property tax system must do a better job of promoting the city’s economic wellbeing by addressing the significant disparities within the system. This in includes the fact that the current system severely overburdens and discourages the production of rental housing and is not well-positioned to support the commercial sector as it undergoes significant changes engendered by the pandemic and the rise of remote work. Moving forward, reforms should respond to these challenges and create a more transparent and predictable system including through a cap on the growth of the property tax levy and a better system to review property taxes on individual properties.
The Property Tax System Discourages Rental Housing Production
New York City faces a housing crisis that is driven by the lack of rental housing production. Earlier this year, REBNY commissioned a study by AKRF that showed there is an immediate need for over 200,000 housing units, and New York City will require half a million unit of new housing to keep up with job and population growth by 2030. A major contributor to this crisis is that the current system punishes large multifamily rental dwellings with outsized property tax obligations. As it stands, rental buildings pay an effective tax rate that is 80 percent higher than single family homes and is the highest tax rates for this property type in the country. As nearly 70% of households rent across the five boroughs, property tax reform must lower the tax burden on rental housing.
The current tax structure not only impedes the City’s ability to grow its rental housing stock but also makes it challenging to maintain and improve the rental housing that is already built. For existing rental buildings, the expiration of the J-51 program has left few options for owners to address the high property tax burden imposed on current rental buildings.
Importantly, while reducing the tax burden on rental buildings will help create more rental housing, an as-of-right tax tool to encourage below-market-rate housing will still be required. This is because reduced property taxes alone will not be adequate to offset the revenue needed to develop and operate rental housing with below-market rent units. Even lower rent states like Oklahoma and Arkansas require tax incentive tools that support the development of below-market-rate housing.
Property Tax Reform Should Support the City’s Commercial Sector
The commercial office sector has been in tumult for the last several years. The onset of the pandemic brought instability and uncertainty to commercial property owners and tenants alike. While office occupancy generally continues to improve, the future of the commercial office market remains cloudy. Given this uncertainty, policymakers should reevaluate the impact of property taxes on the commercial building sector and assess how commercial property taxes should be adjusted to ensure that this the city’s central business districts and its entire economy continues to recover.
Under the current system, commercial buildings have a high effective tax rate. According to a study by the Citizens Budget Commission in 2017, commercial properties accounted for 42 percent of the property tax levy, and generally pay higher effective tax rates compared to other cities across the country.6Property tax reform must mitigate the tax burden on commercial buildings to help this critical sector of New York’s tax base and economy to swift and full recovery.
As a starting point, the City Council should eliminate the Commercial Rent Tax. This 3.9 percent tax to commercial tenants south of 96th street with annual rents more than $250,000, is restricting business recovery in the most populous residential, commercial, and tourist destinations in our city and is inhibiting those business and the revenue stream that has been most impacted by the pandemic. New York continues to prove its resilience but allowing this tax to continue under the current circumstances is unduly limiting the speed at which we can reach full economic health.
Thank you for considering these points.