Why Billionaires Don't Pay Property Taxes in New York(citylab.com)
citylab.com
Why Billionaires Don't Pay Property Taxes in New York
http://www.citylab.com/housing/2015/05/why-billionaires-dont-pay-property-taxes-in-new-york/389886/?utm_source=SFTwitter
27 comments
A few points.
First, I agree 421a is ludicrous, which is why I don't see why you credit NYC for "extracting concessions like low and moderate-income housing". 421a and similar programs trade billions of dollars in tax revenue that could be spent on everyone for hundreds of thousands of dollars in rental subsidies handed out to a few lucky lottery winners. That is terrible public policy. A park or subway station improvement is a little closer call, but cash ought to be the gold standard.
Second, I'm not sure I care whether billionaires buy castle in the sky in midtown or townhouses in Greenwich Village. I wasn't going to be able to afford the townhouses anyway. It seems like the people most concerned about billionaires bidding up property are the centimillionaires being priced out. 100 units, even extremely large units, are a drop in the bucket for NYC. The knock-on effects are just not that large out in the places where the middle and lower classes live.
Finally, in terms of extracting more, I think the in-kind programs are both inefficient and a massive opportunity for corruption. I'd much rather see all the special deals -- parks, affordable housing, etc. eliminated and property taxes that reflect reality imposed, with perhaps a small pied-à-terre differential. The billions of dollars of missing tax revenue would be a lot more valuable to NYC than a few more housing lotteries or a small park, if for no other reason than you can subsidize rentals with cash but you can't fix potholes with subsidized rentals.
First, I agree 421a is ludicrous, which is why I don't see why you credit NYC for "extracting concessions like low and moderate-income housing". 421a and similar programs trade billions of dollars in tax revenue that could be spent on everyone for hundreds of thousands of dollars in rental subsidies handed out to a few lucky lottery winners. That is terrible public policy. A park or subway station improvement is a little closer call, but cash ought to be the gold standard.
Second, I'm not sure I care whether billionaires buy castle in the sky in midtown or townhouses in Greenwich Village. I wasn't going to be able to afford the townhouses anyway. It seems like the people most concerned about billionaires bidding up property are the centimillionaires being priced out. 100 units, even extremely large units, are a drop in the bucket for NYC. The knock-on effects are just not that large out in the places where the middle and lower classes live.
Finally, in terms of extracting more, I think the in-kind programs are both inefficient and a massive opportunity for corruption. I'd much rather see all the special deals -- parks, affordable housing, etc. eliminated and property taxes that reflect reality imposed, with perhaps a small pied-à-terre differential. The billions of dollars of missing tax revenue would be a lot more valuable to NYC than a few more housing lotteries or a small park, if for no other reason than you can subsidize rentals with cash but you can't fix potholes with subsidized rentals.
Right, but a rich person with lots of money to throw around would buy three a three unit townhouse and price out three families just to keep it empty 80% of the time -- This is the value of midtown luxury building construction -- it draws a remarkable amount of the money away from pricing out actual new yorkers.
I agree that we don't do enough -- that's why I said that twice. I was simply adding that there is some value to construction of luxury property buildings, and perhaps insinuating that if we went so far on taxes that none of these got built, we would be worse off. I don't know where the actual trade off is -- again, we're well beyond it with 421a.
I agree that we don't do enough -- that's why I said that twice. I was simply adding that there is some value to construction of luxury property buildings, and perhaps insinuating that if we went so far on taxes that none of these got built, we would be worse off. I don't know where the actual trade off is -- again, we're well beyond it with 421a.
> Right, but a rich person with lots of money to throw around would buy three a three unit townhouse and price out three families just to keep it empty 80% of the time
Sorry but what's wrong with that? We have land tax for exactly the same reason. If someone is willing to own the expensive apartments (and the expensive land that they build upon) and pay the taxes, why is that a problem?
I guess I don't see how gentrification is a problem at all. If Manhattan is expensive, people should move out. This is a genuine question. Why should they live there if they can't afford to live there? Is it a good use of public resources (policy makers' time, potential tax income etc)? Honest question.
Sorry but what's wrong with that? We have land tax for exactly the same reason. If someone is willing to own the expensive apartments (and the expensive land that they build upon) and pay the taxes, why is that a problem?
I guess I don't see how gentrification is a problem at all. If Manhattan is expensive, people should move out. This is a genuine question. Why should they live there if they can't afford to live there? Is it a good use of public resources (policy makers' time, potential tax income etc)? Honest question.
Well the big thing is that most people can't just move if they want to. They have their jobs, and (especially if they're older) it might be really hard for them to get an equivalent job elsewhere. So moving will already cost them money.
The second part of this is that it costs a lot of money for these people to move/be without income. So for some, they might just be too poor to move, and suffer with diminishing disposable income as the price of everything else around them rises.
I think the core of the argument is that it's not like these rich people came into a barren land and built giant apartments. There are many people in NYC that simply live there, and why let these billionaires come in and make everything more expensive?
I think that's the crux of the counter-argument. I think that a combination of proper tax brackets, loose zoning regulation allowing for high-density housing + commercial mixes, and primary-residence rules can solve the problem.
I think the central moral argument is that having giant empty houses in the middle of a city with a community trying to do otherwise isn't exactly useful for society as a whole (see Detroit) , so we should disincentive it as much as possible.
The second part of this is that it costs a lot of money for these people to move/be without income. So for some, they might just be too poor to move, and suffer with diminishing disposable income as the price of everything else around them rises.
I think the core of the argument is that it's not like these rich people came into a barren land and built giant apartments. There are many people in NYC that simply live there, and why let these billionaires come in and make everything more expensive?
I think that's the crux of the counter-argument. I think that a combination of proper tax brackets, loose zoning regulation allowing for high-density housing + commercial mixes, and primary-residence rules can solve the problem.
I think the central moral argument is that having giant empty houses in the middle of a city with a community trying to do otherwise isn't exactly useful for society as a whole (see Detroit) , so we should disincentive it as much as possible.
>I think the central moral argument is that having giant empty houses in the middle of a city
Raise property taxes if you don't want property to be left unoccupied.
I sympathize with people who are already living there but it just doesn't make any economic sense to give tax breaks to benefit a small population that's already living there. There is no benefit to the population at large to prevent an incumbent population from getting priced out.
The goal should be to increase the supply of cheaper housing and make it abundant. I doubt it is possible in Manhattan today. Why not do it somewhere close by where they are not likely to be priced out? Instead, we build things like the east rover ferry which is clearly intended to raise the rent in apartment complexes midtown and first avenue...
Raise property taxes if you don't want property to be left unoccupied.
I sympathize with people who are already living there but it just doesn't make any economic sense to give tax breaks to benefit a small population that's already living there. There is no benefit to the population at large to prevent an incumbent population from getting priced out.
The goal should be to increase the supply of cheaper housing and make it abundant. I doubt it is possible in Manhattan today. Why not do it somewhere close by where they are not likely to be priced out? Instead, we build things like the east rover ferry which is clearly intended to raise the rent in apartment complexes midtown and first avenue...
I think the trick is to raise property taxes on un-occupied/secondary housing, because if not you're just raising taxes for everyone.
I doubt the people already living there is small. Most people don't really move out of cities they grew up or went to college in. So we're talking about a substantial chunk of the population. There are cultural arguments for protecting the incumbent population.
Like I said, that's the counterargument as has been presented to me. It's not black and white (obviously). I think the proper solution is stronger transportation and making other areas more livable. But there's a strong argument for making real estate not become just an investment vehicle (literally rent seeking!), and make it more about actually housing people.
I doubt the people already living there is small. Most people don't really move out of cities they grew up or went to college in. So we're talking about a substantial chunk of the population. There are cultural arguments for protecting the incumbent population.
Like I said, that's the counterargument as has been presented to me. It's not black and white (obviously). I think the proper solution is stronger transportation and making other areas more livable. But there's a strong argument for making real estate not become just an investment vehicle (literally rent seeking!), and make it more about actually housing people.
Why don't billionaires build palaces in Iowa? Regular income folks build amazing cities, and then rich folks move in and crush the cities and price everyone else out, and often don't even live there, just put up empty properties that drain local commerce.
"Raise property taxes if you don't want property to be left unoccupied."
Yes, that's what everyone is saying.
Yes, that's what everyone is saying.
Manhattan still needs the lower and lower-middle class folks to keep it running. Pricing them out of the city means they live farther away, causing:
1. An increase in their commutes, causing a decrease in wealth. 2. A decrease in their effective wage per hour spent "at" work (I include commute time here because it's time committed to employment), reducing their financial productivity. 3. A decrease in time spent with their families, which research shows negatively affects piles of aspects of family life and child development. Reductions in parental content affect emotional health, reduce academic performance, increase likelihood to make poor decisions vis a vis the law...
Housing price inflation depresses factors for success in families that can't keep up. A shiny bus stop or subway station is a lot less valuable to the community than a janitor spending an extra hour with her/his family at the end of the day.
1. An increase in their commutes, causing a decrease in wealth. 2. A decrease in their effective wage per hour spent "at" work (I include commute time here because it's time committed to employment), reducing their financial productivity. 3. A decrease in time spent with their families, which research shows negatively affects piles of aspects of family life and child development. Reductions in parental content affect emotional health, reduce academic performance, increase likelihood to make poor decisions vis a vis the law...
Housing price inflation depresses factors for success in families that can't keep up. A shiny bus stop or subway station is a lot less valuable to the community than a janitor spending an extra hour with her/his family at the end of the day.
If the people moving in weren't leaving their property empty most of the time I could almost buy this, but why should a long term resident move out to give a billionaire an extra holiday home?
Just increase property taxes higher if the billionaire's behavior is unacceptable. At some point, they will get priced out as well.
Do I have the right to live somewhere forever if I rent an apartment?
Do I have the right to live somewhere forever if I rent an apartment?
You seem to be arguing that the solution here to make sure everyone is priced out of the market, and no one should be able to live in these properties. I'm not sure how that helps anyone.
Yes, that's what the story is about -- excessive/vacant properties should pay progressive tax. Just like how cities condemn shoddy apartments and hand them out for redevelopment (Kelo)
The article isn't even calling for a progressive tax or an absentee differential, just that the new ultra-lux condos shouldn't get a tax break of 90+%.
That seems like a no-brainer to me. About the only argument in this thread against it is from zaroth (https://news.ycombinator.com/item?id=9534802). He says that these buildings wouldn't be built without the tax break. I'd be willing to consider the possibility, but I'm unconvinced at this point.
That seems like a no-brainer to me. About the only argument in this thread against it is from zaroth (https://news.ycombinator.com/item?id=9534802). He says that these buildings wouldn't be built without the tax break. I'd be willing to consider the possibility, but I'm unconvinced at this point.
> I guess I don't see how gentrification is a problem at all
Often it's how the situation got there in the first place. For example, in one suburb in my city a few landlords who owned apartments started renting to "undesirables" - illegal aliens, prostitutes and known drug dealers. This brought all kinds of problems because the area became known as a "safe haven" for petty criminals.
This drove down the market values of all the properties in the area, which is of course what these landlords wanted. After people started moving out they started purchasing properties and land all over the area and when they were comfortable enough with what they had, they enlisted the help of the police to evict the undesirables (and thereafter push up rent). With more properties under their belt, they had more say in the rate payers association, which meant they had more power to vote on things that worked in their favour rather than the original residents. I'm sure you can see where things went from there.
The other side of things is also what gentrification usually implies - destruction of communities. But let's leave that for another discussion...
Often it's how the situation got there in the first place. For example, in one suburb in my city a few landlords who owned apartments started renting to "undesirables" - illegal aliens, prostitutes and known drug dealers. This brought all kinds of problems because the area became known as a "safe haven" for petty criminals.
This drove down the market values of all the properties in the area, which is of course what these landlords wanted. After people started moving out they started purchasing properties and land all over the area and when they were comfortable enough with what they had, they enlisted the help of the police to evict the undesirables (and thereafter push up rent). With more properties under their belt, they had more say in the rate payers association, which meant they had more power to vote on things that worked in their favour rather than the original residents. I'm sure you can see where things went from there.
The other side of things is also what gentrification usually implies - destruction of communities. But let's leave that for another discussion...
You are saying that the presence of low income housing causes its own destruction? Then how will low-income folks ever find housing?
I'm not saying that at all. I'm stating a real-world scenario that can lead to gentrification.
- Unscrupulous landlords intentionally drive down the price of property (this is NOT "low-income housing")
- They purchase the under-valued properties in bulk
- They increase rentals, prices and use power gained from the rate-payers association to force poorer people out, and to make it harder for them to move in
Furthermore, you can live on an expensive property and not be wealthy. That's not the same as buying a cheap property. Case-in-point: Families that have lived on the outer-skirts of a growing city for several generations. When they moved in the properties were relatively cheap, and rent was low. As the city grew, the land value increased. This does not automatically make them wealthy, and the increased prices does not automatically mean they will want to sell their properties or move out.
- Unscrupulous landlords intentionally drive down the price of property (this is NOT "low-income housing")
- They purchase the under-valued properties in bulk
- They increase rentals, prices and use power gained from the rate-payers association to force poorer people out, and to make it harder for them to move in
Furthermore, you can live on an expensive property and not be wealthy. That's not the same as buying a cheap property. Case-in-point: Families that have lived on the outer-skirts of a growing city for several generations. When they moved in the properties were relatively cheap, and rent was low. As the city grew, the land value increased. This does not automatically make them wealthy, and the increased prices does not automatically mean they will want to sell their properties or move out.
As a few people below have pointed out in various ways, this is a pretty absurd perspective. Quality of life is highly influenced by stability, and being priced out of an area where you're trying to raise a family is the opposite of stability.
Is the point of a city to relentlessly grow and attract money, or to provide a good place to live for its residents?
Is the point of a city to relentlessly grow and attract money, or to provide a good place to live for its residents?
I agree with most of this, but "concessions for low-income housing" don't actually achieve the goal of making housing more affordable, because they penalize developers for developing.
The effect is to redistribute a small quantity of housing to the lucky poor--and I mean "lucky" because the waiting list for affordable housing in NYC is years long--without voters really feeling like their wealth is being redistributed. But I live here and $3000 is redistributed from my bank account every month; unfortunately, it is redistributed to a rich landlord rather than the deserving.
The effect is to redistribute a small quantity of housing to the lucky poor--and I mean "lucky" because the waiting list for affordable housing in NYC is years long--without voters really feeling like their wealth is being redistributed. But I live here and $3000 is redistributed from my bank account every month; unfortunately, it is redistributed to a rich landlord rather than the deserving.
The reality of NYC housing, real estate and taxation are vastly different from what I have experienced.
As someone living in Pittsburgh, $3000 a month in rent strikes me as ridiculous.
For that kind of money, one could have a McMansion in an upscale suburb 20-30 minutes away from downtown.
As someone living in Pittsburgh, $3000 a month in rent strikes me as ridiculous.
For that kind of money, one could have a McMansion in an upscale suburb 20-30 minutes away from downtown.
Every single time rent in NYC or San Francisco is brought up, everyone makes comments like "I only pay $500 a month for my ten-bedroom house in Kansas!" And the reason that rent in NYC is higher than rent in Kansas or Pittsburgh, etc. is simply because more people want to live there. It's simple supply and demand.
It's more than simple supply and demand. It's artificially low supply and increased demand.
Sweetheart deals for luxury housing and rent controlled housing mean that developers are going to put more time, energy and money into bringing upper income housing into NYC while the middle and lower income people are left with fewer options.
Because of the geography and municipal structure of the area, middle and upper-middle income housing is doing quite well here.
Sweetheart deals for luxury housing and rent controlled housing mean that developers are going to put more time, energy and money into bringing upper income housing into NYC while the middle and lower income people are left with fewer options.
Because of the geography and municipal structure of the area, middle and upper-middle income housing is doing quite well here.
NYC has the highest pop density of just about any city in the world. It has extremely high demand, due to its celebrity status making it a magnet for the whole world.
That high demand coupled with artificially low supply has led to exorbitant pricing in the NYC housing market.
Just because we can explain why it happens doesn't make those prices any less exorbitant.
Pricing is exorbitant in other facets of life in NYC as well but that is a separate discussion.
Just because we can explain why it happens doesn't make those prices any less exorbitant.
Pricing is exorbitant in other facets of life in NYC as well but that is a separate discussion.
well it's restricted supply, especially in SF. If more high-rise apartments were built in downtown SF (and there's demand, but just too much pushback from local officials), this debate would probably not be happening at all.
It's not like SF is crowded, it's just that we've built really bad buildings for holding a lot of people.
It's not like SF is crowded, it's just that we've built really bad buildings for holding a lot of people.
I don't know. In every built up city I've been to, I live in one now (on the 16th floor of a 30 story apartment)...with high density, the prices just seem to go up and up with the high rises.
Can you point out a city that built up and is affordable (with a good economy also)?
Can you point out a city that built up and is affordable (with a good economy also)?
Chicago.
Here is a random 10-year old condo for $255k: http://www.trulia.com/property/3201711637-222-N-Columbus-Dr-...
Here is an older, further-out one for less than half that: http://www.trulia.com/property/3193730688-3950-N-Lake-Shore-... (still in a decent neighborhood and near a 24-hour rapid transit line)
Here is a large 3-bedroom for $485,000: http://www.trulia.com/property/3197384352-212-W-Washington-S...
Here is a large 3-bedroom, futher out, for $450k in a newly-built brick walkup: http://www.trulia.com/property/3027918821-2550-W-Logan-Blvd-...
There are a lot of variations on similar themes.
Chicago's economy isn't San Francisco's, or New York's, and it doesn't have many exciting software jobs or world-class outdoor recreation. But it is still a big city with big-city opportunities and many well-paying jobs. And it clearly demonstrates that a sufficient housing stock guarantees no building type, even skyscrapers, are inherently tied to high prices. Just as San Francisco's predicament demonstrates that keeping old buildings in place doesn't hold down prices.
Here is a random 10-year old condo for $255k: http://www.trulia.com/property/3201711637-222-N-Columbus-Dr-...
Here is an older, further-out one for less than half that: http://www.trulia.com/property/3193730688-3950-N-Lake-Shore-... (still in a decent neighborhood and near a 24-hour rapid transit line)
Here is a large 3-bedroom for $485,000: http://www.trulia.com/property/3197384352-212-W-Washington-S...
Here is a large 3-bedroom, futher out, for $450k in a newly-built brick walkup: http://www.trulia.com/property/3027918821-2550-W-Logan-Blvd-...
There are a lot of variations on similar themes.
Chicago's economy isn't San Francisco's, or New York's, and it doesn't have many exciting software jobs or world-class outdoor recreation. But it is still a big city with big-city opportunities and many well-paying jobs. And it clearly demonstrates that a sufficient housing stock guarantees no building type, even skyscrapers, are inherently tied to high prices. Just as San Francisco's predicament demonstrates that keeping old buildings in place doesn't hold down prices.
Yes , slightly less desirable cities have slightly lower prices.
Tokyo is pretty reasonable. A 1-person apartment is under $1k/month no matter where in the city you are, you can get something student-sized for $600 a month. Not $3k/month for sure.
From personal experience, at least, supply is _not_ an issue in Tokyo. You can go to a real estate agent and go see like 4 or 5 places in a day and take it almost immediately.
This is compared to (second hand stories) of apartments in Paris where you have 10 people show up to look at 1 apartment and it's a crapshoot whether you can get it.
From personal experience, at least, supply is _not_ an issue in Tokyo. You can go to a real estate agent and go see like 4 or 5 places in a day and take it almost immediately.
This is compared to (second hand stories) of apartments in Paris where you have 10 people show up to look at 1 apartment and it's a crapshoot whether you can get it.
Chicago. Still affordable outside of the most popular areas.
The unfortunate reality is that NYC was not as expensive until fairly recently, and lots of long-time residents have been utterly priced out of their long-time home.
The population of Pittsburgh has been declining for over 50 years. It's likely to have a lower cost for housing since demand is disappearing. SF/NYC have the opposite problem of limited supply of housing and increasing population.
In the city proper, absolutely but many of the suburbs have been growing. Particularly in the last 10-20 years.
> However, primary occupancy in the major properties under discussion here (the three along 57th plus the Time Warner center and a few others) is incredibly low, and basically speaks to high-end real estate bubble.
So? I don't care if you bought it to live in, to invest in, or to farm pigs in. It should be taxed according to the actual market value, which pretty much means taxed based on the price you paid for it (at least in the year you bought it).
So? I don't care if you bought it to live in, to invest in, or to farm pigs in. It should be taxed according to the actual market value, which pretty much means taxed based on the price you paid for it (at least in the year you bought it).
> it's totally worth noting that NYC does a much better job than most cities at permitting the construction of new luxury units
NYC builds fewer units per resident than any city in the US except probably SF. It just looks impressive because each new building adds a mark to the most visible part of the skyline, but when you consider the volume of units across NYC it's really, really low.
Prices aren't at SF level, but they are still getting unreasonably high.
NYC builds fewer units per resident than any city in the US except probably SF. It just looks impressive because each new building adds a mark to the most visible part of the skyline, but when you consider the volume of units across NYC it's really, really low.
Prices aren't at SF level, but they are still getting unreasonably high.
Author here (thanks!), and yes, you're right, the alternative to ultra-luxe construction is more frightening, and we know that because of San Francisco. That's worth keeping in mind.
Not many Russians in New York, mostly Ukrainians.
Nobody lives in these condos for the most part. They are money laundering/tax shelter vehicles for the uber-rich, especially foreigners. The same phenomenon is common in south florida.
A lot of the content of the article is FUD. There is no relationship between income and property tax levy -- it's based on the adjusted value of the property. In the case of an apartment building, the value is easily computed as a factor of the revenue generated. Obviously, the process in NY is prone to corruption, as the leaders of both houses of the state legislature under Federal investigation for related issues. There are lots of stakeholders here with different interests -- unions want construction jobs, lawyers get to bill for title and other work, etc.
What has changed during the last 15 years is the importance of property tax in NYC. Unlike the rest of the state, other revenue sources were more prominent. Now, in addition to high sales tax, city income tax, special transit payroll tax, and other costs associated with NYC, you get high property taxes too.
A lot of the content of the article is FUD. There is no relationship between income and property tax levy -- it's based on the adjusted value of the property. In the case of an apartment building, the value is easily computed as a factor of the revenue generated. Obviously, the process in NY is prone to corruption, as the leaders of both houses of the state legislature under Federal investigation for related issues. There are lots of stakeholders here with different interests -- unions want construction jobs, lawyers get to bill for title and other work, etc.
What has changed during the last 15 years is the importance of property tax in NYC. Unlike the rest of the state, other revenue sources were more prominent. Now, in addition to high sales tax, city income tax, special transit payroll tax, and other costs associated with NYC, you get high property taxes too.
>Nobody lives in these condos for the most part. They are money laundering/tax shelter vehicles for the uber-rich, especially foreigners. The same phenomenon is common in south florida.
Which is the reason some people in San Francisco are skeptical about the ability of increased housing supply to contain or decrease housing prices. Adding supply that ends up being unoccupied because it's owned by absent uber-rich does little or nothing to decrease housing prices for locals. And if you demolish existing housing that is occupied by locals and replace it with housing that becomes pied-à-terres for the absent wealthy, you can, paradoxically, actually increase the price of housing for locals by adding new housing.
Of course, never building anything (like David Campos apparently wants) isn't the solution. But if one wants to decreasing housing prices for locals by adding supply, one needs to ensure that the housing is actually used by locals. Which I don't think anyone knows how to do.
Which is the reason some people in San Francisco are skeptical about the ability of increased housing supply to contain or decrease housing prices. Adding supply that ends up being unoccupied because it's owned by absent uber-rich does little or nothing to decrease housing prices for locals. And if you demolish existing housing that is occupied by locals and replace it with housing that becomes pied-à-terres for the absent wealthy, you can, paradoxically, actually increase the price of housing for locals by adding new housing.
Of course, never building anything (like David Campos apparently wants) isn't the solution. But if one wants to decreasing housing prices for locals by adding supply, one needs to ensure that the housing is actually used by locals. Which I don't think anyone knows how to do.
Which is the reason some people in San Francisco are skeptical about the ability of increased housing supply to contain or decrease housing prices
People are skeptical because they don't understand basic economics: see http://www.amazon.com/Rent-Too-Damn-High-Matters-ebook/dp/B0... or http://www.amazon.com/Gated-City-Kindle-Single-ebook/dp/B005.... When building in desirable neighborhoods is exceedingly difficult developers target very high-end housing. When building policies are reasonable developers target wider swaths of the market.
People are skeptical because they don't understand basic economics: see http://www.amazon.com/Rent-Too-Damn-High-Matters-ebook/dp/B0... or http://www.amazon.com/Gated-City-Kindle-Single-ebook/dp/B005.... When building in desirable neighborhoods is exceedingly difficult developers target very high-end housing. When building policies are reasonable developers target wider swaths of the market.
>When building policies are reasonable developers target wider swaths of the market.
The only guarantee one has is that developers will build what generates the most profit for them. That's basic economics. If the most profit is found in housing for locals, then locals get housing. If it's in pied-à-terres, then they don't.
The only guarantee one has is that developers will build what generates the most profit for them. That's basic economics. If the most profit is found in housing for locals, then locals get housing. If it's in pied-à-terres, then they don't.
And when developers are allowed to build for the whole market, they will build first for the top... and then for everyone else once the high end is exhausted. The demand there is not infinite. It's not even close to infinite.
It only seems that way sometimes in SF because there is literal decades of pent-up demand that needs to be satisfied, resulting in people willing to pay quite high prices.
It only seems that way sometimes in SF because there is literal decades of pent-up demand that needs to be satisfied, resulting in people willing to pay quite high prices.
>The demand there is not infinite. It's not even close to infinite.
Neither is the supply of land.
The question is, can San Francisco build enough to satisfy this demand, without replacing so much of the existing housing stock that San Francisco doesn't look like San Francisco any more? I don't know. And maybe it's not important. Cities do evolve, after all.
But I do think the question needs to be asked, and debated.
Neither is the supply of land.
The question is, can San Francisco build enough to satisfy this demand, without replacing so much of the existing housing stock that San Francisco doesn't look like San Francisco any more? I don't know. And maybe it's not important. Cities do evolve, after all.
But I do think the question needs to be asked, and debated.
The question is old. It's been asked. It's been debated. Both question and debate were old when both of us were young.
The answer is: yes. The heart of San Francisco lives not in a brick or a stone or a board, but in the hearts of San Franciscans. Gold in peace, iron in war.
The answer is: yes. The heart of San Francisco lives not in a brick or a stone or a board, but in the hearts of San Franciscans. Gold in peace, iron in war.
Well, the impact is variable, though. If people are buying pied-à-terres out of the existing housing stock anyway, consolidating them into new luxury condos downtown makes those apartments available to regular renters.
Even if some new luxury apartments are pied-à-terres which would not be in SF in the absence of new construction, if some are actually occupied then rents for the city in general will also benefit. (New downtown high-rises with super-fancy penthouses can easily have many real residents on the lower floors.)
Even if some new luxury apartments are pied-à-terres which would not be in SF in the absence of new construction, if some are actually occupied then rents for the city in general will also benefit. (New downtown high-rises with super-fancy penthouses can easily have many real residents on the lower floors.)
> People are skeptical because they don't understand basic economics
Or they've learned that simple models don't always capture reality.
> When building policies are reasonable developers target wider swaths of the market.
Do the sources you've cited here or any others you're aware of present a reasonable number of situations where this has happened and led to a decrease in housing prices?
Because I've never been able to find any kind of decrease independent of a demand collapse.
Or they've learned that simple models don't always capture reality.
> When building policies are reasonable developers target wider swaths of the market.
Do the sources you've cited here or any others you're aware of present a reasonable number of situations where this has happened and led to a decrease in housing prices?
Because I've never been able to find any kind of decrease independent of a demand collapse.
1) You have to be careful with your definition of "local". The major reason that housing prices are so high is that many more people would like to be SF locals than currently can be.
2) Buying an investment home in SF is basically a bet that the authorities will continue to keep housing supply growing much slower than demand, causing prices to rise. Speculation just causes current prices to better match expected future prices.
2) Buying an investment home in SF is basically a bet that the authorities will continue to keep housing supply growing much slower than demand, causing prices to rise. Speculation just causes current prices to better match expected future prices.
Which I don't think anyone knows how to do.
Do they really not? Seems pretty simple to just make regular small family apartments. If the apartment you're building looks like this: http://cdn.theatlantic.com/assets/media/img/posts/2015/04/On...
then it's probably going to attract the uber-rich. Why not just make a bunch of boring utilitarian apartments (not crappy ones, just high bang for the buck) and set restrictions on the scope of improvements allowed?
Do they really not? Seems pretty simple to just make regular small family apartments. If the apartment you're building looks like this: http://cdn.theatlantic.com/assets/media/img/posts/2015/04/On...
then it's probably going to attract the uber-rich. Why not just make a bunch of boring utilitarian apartments (not crappy ones, just high bang for the buck) and set restrictions on the scope of improvements allowed?
> But if one wants to decreasing housing prices for locals by adding supply, one needs to ensure that the housing is actually used by locals. Which I don't think anyone knows how to do.
Building it is an excellent first step. Housing that is never built will with 100% certainty not actually be used by locals.
Building it is an excellent first step. Housing that is never built will with 100% certainty not actually be used by locals.
That makes sense for undeveloped land (e.g. the Balboa Reservoir project). But there's very little of that in San Francisco. Realistically, adding to San Francisco's housing supply means replacing a lot of existing stock with higher density housing. If that higher-density housing is mostly or completely occupied by locals (by which I mean people who will be domiciled at that location), then it's a net win. But if not, then San Francisco residents end up worse off.
For example, say that a developer tore down housing for 1,000 people on some property, and then replaced it with housing for 3,000 people. That adds capacity for 2,000 people. But if 950 people were domiciled at the old property, but only 750 people are domiciled at the new property, then it's actually a net decrease in supply for people who reside in San Francisco. If the original property was old and run-down (which is what usually gets replaced in these situations), and the new property consists of units that have great appeal to wealthy people looking for a San Francisco pied-à-terre, then a situation like this is certainly possible.
For example, say that a developer tore down housing for 1,000 people on some property, and then replaced it with housing for 3,000 people. That adds capacity for 2,000 people. But if 950 people were domiciled at the old property, but only 750 people are domiciled at the new property, then it's actually a net decrease in supply for people who reside in San Francisco. If the original property was old and run-down (which is what usually gets replaced in these situations), and the new property consists of units that have great appeal to wealthy people looking for a San Francisco pied-à-terre, then a situation like this is certainly possible.
Fortunately, that situation can be handled effectively through scale.
There is a limited number of wealthy people looking for a San Francisco pied-à-terre, and that is a market that can be exhausted without driving all other residents out. At which point standard market forces mean construction for the less wealthy will occur.
There is a limited number of wealthy people looking for a San Francisco pied-à-terre, and that is a market that can be exhausted without driving all other residents out. At which point standard market forces mean construction for the less wealthy will occur.
I generally agree with you from a policy point of view, but I think you're oversimplifying:
The number of wealthy people looking for a pied-à-terre in SF is not a fixed quantity. It seems to me that that number has grown significantly compared to, say, 10 years ago. And that that's mostly due to the increased prestige of the city (as perceived by that wealthy set). That prestige comes from economic growth, but also from a sense of how friendly the city is to pied-à-terres for wealthy people. So building more of them might just end up increasing the demand for them.
Sure, the process won't go on literally forever until the city is nothing but vacant luxury condos, but the total demand after that compounding effect has gone on a while may be much more than it appeared at first.
The number of wealthy people looking for a pied-à-terre in SF is not a fixed quantity. It seems to me that that number has grown significantly compared to, say, 10 years ago. And that that's mostly due to the increased prestige of the city (as perceived by that wealthy set). That prestige comes from economic growth, but also from a sense of how friendly the city is to pied-à-terres for wealthy people. So building more of them might just end up increasing the demand for them.
Sure, the process won't go on literally forever until the city is nothing but vacant luxury condos, but the total demand after that compounding effect has gone on a while may be much more than it appeared at first.
Over time, the number of people looking for a pied-à-terre is not fixed. This is true. This is also true for every other possible category of people.
Thankfully, this not-fixed number is also not infinite. Just as the housing market also does not need to operate over a fixed quantity of housing. Building more increases that not-fixed quantity so that the not-fixed quantity of demand might be met.
When you have an economic boom, you need to grow your infrastructure to match. Not sit around bemoaning that that might enable future growth that will, to a great degree, happen even if you don't grow infrastructure.
Look no further than the current housing crisis - accurately predicted in 2000 - to see the results of the notion that growing infrastructure is bad because it encourages use of infrastructure.
Thankfully, this not-fixed number is also not infinite. Just as the housing market also does not need to operate over a fixed quantity of housing. Building more increases that not-fixed quantity so that the not-fixed quantity of demand might be met.
When you have an economic boom, you need to grow your infrastructure to match. Not sit around bemoaning that that might enable future growth that will, to a great degree, happen even if you don't grow infrastructure.
Look no further than the current housing crisis - accurately predicted in 2000 - to see the results of the notion that growing infrastructure is bad because it encourages use of infrastructure.
You just switched the subject of the conversation from "luxury condos for wealthy people" to "infrastructure". That's a tricky debate tactic. Of course you have to "grow infrastructure," nobody is arguing that in the abstract, but there's a lot of choices to make about what and how. Luxury condos are one type of thing that can be built, middle-income housing is another. They have different effects on the city. The current incentives that lead developers to building only luxury condos are not a law of nature or economics, they're a result of political choices by the city and state, and they can be changed.
Housing is infrastructure. Not building housing is not building infrastructure. If you don't build "luxury condos", then what was intended to be middle-income housing will become "luxury condos" because you failed to build sufficient infrastructure. This is not a hypothesis - this is an empirical observation from every city that's ever tried rent control.
There are exactly zero tricky debate tactics going on here.
There are exactly zero tricky debate tactics going on here.
> They are money laundering/tax shelter vehicles for the uber-rich, especially foreigners.
All the more reason to tax them. When I bought my house, its assessed value was the price I paid for it. Why not here?
All the more reason to tax them. When I bought my house, its assessed value was the price I paid for it. Why not here?
In many if not most areas in the US assessed value and market value are two different things. The system in NYC (for homes not condos) is that the assessed value is 6% of market value. While in other place like the entire state of California (at least at time of purchase) assessed value is 100% of the market value - a more straightforward method used in some states. The percentage is know as the "assessment ratio" and varies by state and even within states such as by city or county.
However the tax rates are much higher areas using the 6% method versus the 100% method. For example in NYC the tax rate is 19.157% while in San Francisco is 1.1743%. If you do the math the tax rate on market value is about the same. 6% * 19.157% = 1.149% in NYC versus 1.1743% in SF. In most places it is around 1% but can be over 2% in place like New Jersey, Illinois or upstate New York which unlike NYC relies more on property taxes.
None of this says anything about the NYC system for condos (class 2) that the article talks about but is often a source of confusion when comparing areas that use different systems.
http://www1.nyc.gov/assets/finance/downloads/pdf/brochures/c...
http://www.socketsite.com/archives/2014/09/san-francisco-pro...
EDIT: Here's a good recent review of residential real estate taxes across the US (290kb pdf):
http://www.brookings.edu/~/media/research/files/papers/2013/...
However the tax rates are much higher areas using the 6% method versus the 100% method. For example in NYC the tax rate is 19.157% while in San Francisco is 1.1743%. If you do the math the tax rate on market value is about the same. 6% * 19.157% = 1.149% in NYC versus 1.1743% in SF. In most places it is around 1% but can be over 2% in place like New Jersey, Illinois or upstate New York which unlike NYC relies more on property taxes.
None of this says anything about the NYC system for condos (class 2) that the article talks about but is often a source of confusion when comparing areas that use different systems.
http://www1.nyc.gov/assets/finance/downloads/pdf/brochures/c...
http://www.socketsite.com/archives/2014/09/san-francisco-pro...
EDIT: Here's a good recent review of residential real estate taxes across the US (290kb pdf):
http://www.brookings.edu/~/media/research/files/papers/2013/...
This.
This was very confusing to me when I lived in New York. The property tax rate is terrifying (19 percent annually???), but then you realize that the basis for each property is reduced by a fudge factor such that the effective rate is in the same range that it is in other places.
I suspect that the reason that they do this is to stop people from hassling the city constantly about their assessment. In places like MA, where they make an honest attempt to keep assessments close to 1:1 on value (mine changed annually in the time that I owned the house, often going DOWN -- this was 2007-2010), people are constantly appealing their valuations.
This was very confusing to me when I lived in New York. The property tax rate is terrifying (19 percent annually???), but then you realize that the basis for each property is reduced by a fudge factor such that the effective rate is in the same range that it is in other places.
I suspect that the reason that they do this is to stop people from hassling the city constantly about their assessment. In places like MA, where they make an honest attempt to keep assessments close to 1:1 on value (mine changed annually in the time that I owned the house, often going DOWN -- this was 2007-2010), people are constantly appealing their valuations.
There is absolutely no mathematical difference between 6% and 100% assessment rate, with a corresponding tax rate , it just a change in units.
The only relevant distinction would be if tax or assessment were curved as a function of actual value.
The only relevant distinction would be if tax or assessment were curved as a function of actual value.
It's hard to come up with a system of assessing property values that doesn't have flaws.
If you used the last sale price and didn't adjust, people who bought 30 years ago would benefit unfairly. If you used the sale price and adjust annually, how do you do it? By inflation, by average country/state/city/neighborhood increase in sale prices, etc.? Each has problems. If you hire people to assess the current market value, they can be bribed or make mistakes.
I really like property taxes as a way to fund government, but determining the value of something like a house/condo is actually a bit tricky.
If you used the last sale price and didn't adjust, people who bought 30 years ago would benefit unfairly. If you used the sale price and adjust annually, how do you do it? By inflation, by average country/state/city/neighborhood increase in sale prices, etc.? Each has problems. If you hire people to assess the current market value, they can be bribed or make mistakes.
I really like property taxes as a way to fund government, but determining the value of something like a house/condo is actually a bit tricky.
I've often wondered if one could build a system where the appeals process for an assessment is "the municipality must buy the house at 95% of the assessed value" and "the homeowner must accept a bid at 150% of the assessed value [if they haven't already appealed the assessment in a timely fashion]". Naturally, I started wondering this while I owned a house that the town was over-assessing IMO.
Allow the government to set the rate as they see fit (with all the normal controls of an iterative democratic/representative process), but the assessed value is also a bid of sorts.
Of course there are flaws: an assessment shouldn't vary based on how willing someone is to move, it's still easy to under-assess by a little (but then that drives the rate higher to make the budget), and I'm still a little disquieted by the idea that the control against under-assessing so undermines property rights.
I think that Cambridge (MA) gets this reasonably right. My assessments have tracked the overall market in my area (at least loosely). They might be 10-20% off in a rising market, but they're not 50% off.
Allow the government to set the rate as they see fit (with all the normal controls of an iterative democratic/representative process), but the assessed value is also a bid of sorts.
Of course there are flaws: an assessment shouldn't vary based on how willing someone is to move, it's still easy to under-assess by a little (but then that drives the rate higher to make the budget), and I'm still a little disquieted by the idea that the control against under-assessing so undermines property rights.
I think that Cambridge (MA) gets this reasonably right. My assessments have tracked the overall market in my area (at least loosely). They might be 10-20% off in a rising market, but they're not 50% off.
It's not so hard. You re-base the assessment rolls every 4-7 years, and allow owners to challenge unfair assessments in between.
The problem lies in the nature of politicians... Reassessments upset people whose assessments go up, so the big players lobby to defer the re-basing. Or in the case of California, you never revisit until the property changes hands.
The problem lies in the nature of politicians... Reassessments upset people whose assessments go up, so the big players lobby to defer the re-basing. Or in the case of California, you never revisit until the property changes hands.
"Re-base the assessment" : yes, but how?
In a metrics-based way (#BR, #Baths, square footage)? In an aggregate neighborhood-based way (all 02138 is up 3% this year)? Via drive-by appraisals? Via invasive inside the house appraisals or "broker price opinions"? (The last clause would seem to have significant Fourth Amendment concerns.)
In a metrics-based way (#BR, #Baths, square footage)? In an aggregate neighborhood-based way (all 02138 is up 3% this year)? Via drive-by appraisals? Via invasive inside the house appraisals or "broker price opinions"? (The last clause would seem to have significant Fourth Amendment concerns.)
Usually the use a metrics based valuation using recent sales. Home improvements are captured by building permits. The people who do it tweak the process based on geography and demographics.
That's exactly how mortgage underwriting works. It's not 100% accurate, but there is an appeals process to address inequities.
That's exactly how mortgage underwriting works. It's not 100% accurate, but there is an appeals process to address inequities.
That's exactly how mortgage underwriting works. It's not 100% accurate, but there is an appeals process to address inequities.
This is pretty much the answer. Everyone who argues that it's impossible to figure out a fair value for the property without a change in ownership has to face the fact that lenders do it on demand and (admittedly only theoretically at certain points in recent history) are incentivized to get it right because that's the final method available to them to get their money back if a loan goes south.
This is pretty much the answer. Everyone who argues that it's impossible to figure out a fair value for the property without a change in ownership has to face the fact that lenders do it on demand and (admittedly only theoretically at certain points in recent history) are incentivized to get it right because that's the final method available to them to get their money back if a loan goes south.
1. Lenders do that with the willing cooperation of the borrower (to grant access to the building for the appraiser).
2. That process is labor-intensive and therefore expensive. Typically, the borrower is on the hook for the approximately $500-1000 cost of the appraisal. (If you don't see a line item charge, it's safe to assume that was buried in the discount rate.) On the high side of that range, appraisal costs would be > 10% of the tax collected if you appraised annually. Presumably, doing every property in the municipality at one time would make this process more efficient, but it's still a labor intensive and invasive process. The city's largest commercial landlord, Boston Properties, pays about 4% of the total tax revenue in Cambridge. This process could literally siphon more money out of the system than all Boston Properties buildings pay.
Allowing a mandated and periodic governmental inspection of my property to determine its value and funding that appraisal work present significant hurdles to universal application. In this case, I think that approximately wrong is better than precisely correct.
2. That process is labor-intensive and therefore expensive. Typically, the borrower is on the hook for the approximately $500-1000 cost of the appraisal. (If you don't see a line item charge, it's safe to assume that was buried in the discount rate.) On the high side of that range, appraisal costs would be > 10% of the tax collected if you appraised annually. Presumably, doing every property in the municipality at one time would make this process more efficient, but it's still a labor intensive and invasive process. The city's largest commercial landlord, Boston Properties, pays about 4% of the total tax revenue in Cambridge. This process could literally siphon more money out of the system than all Boston Properties buildings pay.
Allowing a mandated and periodic governmental inspection of my property to determine its value and funding that appraisal work present significant hurdles to universal application. In this case, I think that approximately wrong is better than precisely correct.
> It's hard to come up with a system of assessing property values that doesn't have flaws.
You use square footage of livable area and land. The rates for each (which are different) are the average sale price of all houses in the neighborhood per square foot.
The only hard part is determining neighborhoods. Sure some houses are extra fancy and worth more, but the difference is not large enough to worry about since fancy houses also tend to be larger.
You use square footage of livable area and land. The rates for each (which are different) are the average sale price of all houses in the neighborhood per square foot.
The only hard part is determining neighborhoods. Sure some houses are extra fancy and worth more, but the difference is not large enough to worry about since fancy houses also tend to be larger.
There are many systems that get you within +/-25% for 90% of the houses. Yours is probably in that range, depending on what time period you choose.
If you choose a whole year, your assessments will lag badly in a fast moving market. If you choose a shorter time period, you risk the small number of sales making the measure a noisy one. I suspect the whole year basis is a better balance.
Then of course, there's the "is a garage livable area? is it land? is it neither?" "is a basement livable area?" "what makes an attic livable area vs storage?" "what about porches? patios? sheds? gazebos?"
If you choose a whole year, your assessments will lag badly in a fast moving market. If you choose a shorter time period, you risk the small number of sales making the measure a noisy one. I suspect the whole year basis is a better balance.
Then of course, there's the "is a garage livable area? is it land? is it neither?" "is a basement livable area?" "what makes an attic livable area vs storage?" "what about porches? patios? sheds? gazebos?"
Taxes are usually assessed and paid once a year, so I would go with one year.
Livable area is already very well defined in law, so no need to do it again. Every real estate listing has this number. There's even an ANSI standard Z765-2003 for it.
Livable area is already very well defined in law, so no need to do it again. Every real estate listing has this number. There's even an ANSI standard Z765-2003 for it.
ANSI standard (for single-family buildings only) was an interesting read. Thanks for that pointer!
Struggling to connect the lines of your reasoning. You say these are money laundering tax shelters, and that the poorest members of society pay far more than the foreign billionaires who own them and make money trading them around.
But that's all irrelevant and somehow the article is overblown FUD? Is the point that all the lawyers and construction jobs outweigh taxes? I think the fundamental argument is one of fairness, the people who benefit the most from a wonderful city should pay their share to maintain and support it.
But that's all irrelevant and somehow the article is overblown FUD? Is the point that all the lawyers and construction jobs outweigh taxes? I think the fundamental argument is one of fairness, the people who benefit the most from a wonderful city should pay their share to maintain and support it.
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> Nobody lives in these condos for the most part. They are money laundering/tax shelter vehicles for the uber-rich, especially foreigners.
If that's true, then why should they pay higher taxes? If they're not actually living in the community, they're not using services. Seems fair.
If that's true, then why should they pay higher taxes? If they're not actually living in the community, they're not using services. Seems fair.
They are using space that could otherwise be occupied by others. Doing so would reduce pressure in the housing market and increase the productive density of the city. Part of the point of property taxes is to encourage productive use of space - if the value you're getting isn't enough to cover the property taxes, you're incentivized to sell to someone who will use the space more productively.
Also note that of course the owners are deriving a great deal of benefit from city services, both directly in that they are counting on the NYPD and FDNY to keep their property safe, and indirectly insofar as the whole reason these apartments are valuable in the first place is that NYC is a world-class city where many people desire to live.
Also note that of course the owners are deriving a great deal of benefit from city services, both directly in that they are counting on the NYPD and FDNY to keep their property safe, and indirectly insofar as the whole reason these apartments are valuable in the first place is that NYC is a world-class city where many people desire to live.
> They are using space that could otherwise be occupied by others.
I'm building a tower. The sweet tax situation means I can sell some extra units as tax shelters, so I slap on a couple more floors. Is that then space that would've been occupied by others?
I'm building a tower. The sweet tax situation means I can sell some extra units as tax shelters, so I slap on a couple more floors. Is that then space that would've been occupied by others?
This misses the mark completely on what the NYC building market is like.
For better or worse, building rights are extremely limited. Developers do everything they can to get more building rights. I can't think of any recent building that went up and was limited by demand for space and not by what the building code would allow them to build.
You can assume that given a different set of incentives, the buildings going up would have a different mix of units.
For better or worse, building rights are extremely limited. Developers do everything they can to get more building rights. I can't think of any recent building that went up and was limited by demand for space and not by what the building code would allow them to build.
You can assume that given a different set of incentives, the buildings going up would have a different mix of units.
...yes?
Well here's the thing: if not for those extra tax shelter floors, he would not have built them at all, because no one else was willing to pay for a use of that space. Therefore, had he not built the extra floors on his theoretical tower, the space would have gone completely unused (and likely could not be used in the future).
Meanwhile, since there are people willing to pay to simply own portions of that floor, he builds it. In the future, if there is a high enough demand for that particular space, the owners of those portions of the floors could sell the floors. For those owners, they have effectively used the space on the extra floors as a property investment. However, the floors are still available in use when the time is necessary.
Comparatively, if those floors weren't built, no one would have made use of that space. If the building wasn't designed to accommodate future expansion vertically (is that even possible at that scale), then that space would have gone unused even when a demand for that space finally exists.
Thus, no one is being deprived of space because those extra floors were built. If at all, that space will be more likely to be utilized in the future, since it will have been built and ready for sale.
Meanwhile, since there are people willing to pay to simply own portions of that floor, he builds it. In the future, if there is a high enough demand for that particular space, the owners of those portions of the floors could sell the floors. For those owners, they have effectively used the space on the extra floors as a property investment. However, the floors are still available in use when the time is necessary.
Comparatively, if those floors weren't built, no one would have made use of that space. If the building wasn't designed to accommodate future expansion vertically (is that even possible at that scale), then that space would have gone unused even when a demand for that space finally exists.
Thus, no one is being deprived of space because those extra floors were built. If at all, that space will be more likely to be utilized in the future, since it will have been built and ready for sale.
There is no such thing as "no one else was willing to pay for a use of that space". Maybe no one else would pay the exorbitant price they are sold for and, most likely, no one would pay that price if they had to pay reasonable property taxes on that unit. They are doing no favors to the city. Since property taxes are so low, it often pays just to withdraw units from the market to inflate prices further by creating an artificial scarcity.
It seems unlikely that any space in NYC would go unused, let alone never be used.
You would think so, and yet... http://blogs.villagevoice.com/runninscared/2012/01/new_york_...
Manufactured scarcity shouldn't count. ;-)
That space is being used to drive up the prices of the space actually being used.
That space is being used to drive up the prices of the space actually being used.
Then all towers in New York should be infinitely tall
You jest, but with NY's housing situation, every tower should be as high as reasonably possible to maximum livable space.
"if not for those extra tax shelter floors, he would not have built them at all"
1. You do not know that.
2. Boo hoo. He wouldn't have built the building, but someone else would have.
1. You do not know that.
2. Boo hoo. He wouldn't have built the building, but someone else would have.
So the more tax shelters, the taller the towers?
Seems equally fair for a city to require the standard tax rate regardless of whether the owner lives there. What interest does a city have in allowing residential housing to be bought up by absentee owners paying lower taxes vs. locals who (a) need housing in order to contribute to the community and (b) will pay the standard tax rate?
Taxes on property are not about consumption of services.
Infrastructure like water, roads, and subway systems is only loosly tied to useage. If NY needs to build an extra 500 feet of subway because of an empty building in the middle of the city that's a direct cost.
> needs to build an extra 500 feet of subway because of an empty building
In that case, what does the height of the building matter?
To me this illustrates perfectly why it's not unfair that the people in a shorter building taking up the same surface area are taxed at a higher rate.
In that case, what does the height of the building matter?
To me this illustrates perfectly why it's not unfair that the people in a shorter building taking up the same surface area are taxed at a higher rate.
Not all spending is directly related to infrastructure costs. AKA school teacher salaries. Also, land is varying pricy in cities with a small empty lot could easily be worth 100 million. Or as they say, location, location, location.
Taxing property values much like sales taxes is already regressive as % of income spent on housing decreases as income increases. EX: A firefighter might spend 45% of their income on housing costs where many billionaires spend less than 1% of their income on housing costs.
PS: Though this does bring up the question of what bill Gates’s hypothetical 60 billion dollar house might look like. 15 one world trade centers lined up in a row? How about 1/2 of the ISS?
Taxing property values much like sales taxes is already regressive as % of income spent on housing decreases as income increases. EX: A firefighter might spend 45% of their income on housing costs where many billionaires spend less than 1% of their income on housing costs.
PS: Though this does bring up the question of what bill Gates’s hypothetical 60 billion dollar house might look like. 15 one world trade centers lined up in a row? How about 1/2 of the ISS?
They're using the land/housing that could otherwise be used by someone who actually does live there. Just because you're choosing not to spend your time there shouldn't matter.
They are money laundering/tax shelter vehicles for the uber-rich, especially foreigners
lots of mexican politicians use this scheme...
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Just read this article from 2014 a few days ago - pretty crazy the way they set property values:
"For instance, when former Citigroup Inc. Chairman Sanford Weill sold that 6,744-square-foot condo at 15 Central Park West for $88 million, the city valued it at only $2.8 million. The entire 201-unit building, which is also home to rock musician Sting and hedge fund manager Daniel Loeb, was valued at $242.6 million."
source: http://www.bloomberg.com/news/articles/2014-03-10/nyc-proper...
Man, talk about letting huge amounts of tax revenue walk out the door.
"For instance, when former Citigroup Inc. Chairman Sanford Weill sold that 6,744-square-foot condo at 15 Central Park West for $88 million, the city valued it at only $2.8 million. The entire 201-unit building, which is also home to rock musician Sting and hedge fund manager Daniel Loeb, was valued at $242.6 million."
source: http://www.bloomberg.com/news/articles/2014-03-10/nyc-proper...
Man, talk about letting huge amounts of tax revenue walk out the door.
I never understood why complaining about foreigners taking real-estate is okay but complaining about foreigners taking our jobs is thought of as (IMO rightfully) xenophobic.
Foreign workers are a great benefit to the economy. However, past a certain point, foreign (non-resident) ownership of real estate doesn't provide much benefit to the local economy and can easily push prices up to the point where housing is unaffordable for locals, due to the influx of foreign speculators. Chinese ownership in the Bay Area and Russian ownership in London are two current examples.
As well as Venezuelan ownership in South Florida.
The complaint is that the people don't live there, and therefore don't contribute to the neighborhood. See the recent article about how Vancouver is dying for more info.
Because immigrants actually live here. it is isn't about foreigners, it is about absentees.
And that fact that when a billionaire leaves their home country, it is often for shady reasons, not innocent enduring persecution or suffering.
And that fact that when a billionaire leaves their home country, it is often for shady reasons, not innocent enduring persecution or suffering.
And also, jobs are given, not taken. So if they're going to unqualified people (whether local or foreign), the person taking the job is never to blame. They're just trying to improve their life situation, like anyone else.
No one gives a job to an unqualified person, not for long. (Maybe a nepotistic payroll handout to a friend, but not a job. A job only exists because the worker generates value)
I assume the ability to sell these floors out as a tax shelter / investment property factors in heavily to the financing and scale of the entire project to begin with. Does NYC get to have a One57 Tower without duplex condos selling for 9 figures? Probably not. Do duplex condos sell for anywhere close to 9 figures if the annual property taxes are 7 figures? Certainly not.
When Mayer Bloomberg talked of the ultra-rich moving in, he didn't mean so that the city could literally confiscate their assets, but rather, the city can benefit from the investment that follows. There are great arguments to be had about how much NYC actually benefits from massive infrastructure projects like One57, but the property tax structure is intentional because the city benefits in other ways.
A more interesting analysis would consider the myriad costs and benefits of the construction and upkeep of One57. Obviously there is very significant tax revenue and expenses to the city generated through various channels for a building at that scale. They are not and should not be taxed like single family homes or condos.
When Mayer Bloomberg talked of the ultra-rich moving in, he didn't mean so that the city could literally confiscate their assets, but rather, the city can benefit from the investment that follows. There are great arguments to be had about how much NYC actually benefits from massive infrastructure projects like One57, but the property tax structure is intentional because the city benefits in other ways.
A more interesting analysis would consider the myriad costs and benefits of the construction and upkeep of One57. Obviously there is very significant tax revenue and expenses to the city generated through various channels for a building at that scale. They are not and should not be taxed like single family homes or condos.
The problem with this reasoning is that while new buildings / tenants may be marginally beneficial to the city, if the rate new condos pay is significantly lower than existing buildings, then fairness issues arise. To me, this is analogous to incentives for building factories, etc - why does the big / new factory get a tax incentive while the small / old one doesn't, if it generates the same spinoff investment / employment / revenue? Put another way, the marginal revenue gain may be positive, but lower than the community average revenue gain (or gain in comparable properties) - how is that fair?
(author here) To your point: "They are not and should not be taxed like single family homes or condos."
They are taxed like condos—they are condos. I think the larger issue in this story is that the tools for assessing tax value are crude and don't allow the city to assert a progressive taxation. The range between 0.017 and 1.7 is large, and the city needs to be able to find a target taxation that draws in revenue without warding off services. There's no reason to believe the limit there is 0.017 percent.
They are taxed like condos—they are condos. I think the larger issue in this story is that the tools for assessing tax value are crude and don't allow the city to assert a progressive taxation. The range between 0.017 and 1.7 is large, and the city needs to be able to find a target taxation that draws in revenue without warding off services. There's no reason to believe the limit there is 0.017 percent.
I understand they are taxed under the code as a "condo" but isn't the point of the article that they are not taxed at the rate of a normal condo vis-a-vis their sales price?
Since the sales price is 6 sigma to the right on the bell curve, it doesn't surprise me at all that the tax rate as a percentage of sales price would be similarly offset to the left. I think it would have made the analysis better to have also ranked the dollar value of tax revenue per dwelling unit, and you would see they are paying an extremely high share under that metric. But then the title of the article would have to be "Why Billionaires Pay the Most Per Capita Property Taxes in New York".
Another way to look at it, is if the tax rate were 1.7% instead of 0.017% then the building could not have been built. If the rate were 0.17% the sales price would have been closer to $10 million than $100 million. I think there is no scenario where the city gets the tower, the condo sells for $100 million, AND the city takes even .17% each year in property taxes.
The article reads like the city paid to build the tower and is giving the units away rent-free. It just seems like such a distorted view of the full macroeconomic impact, when in fact NYC is getting exactly what Bloomberg meant when he said he hoped the billionaires to move in.
Since the sales price is 6 sigma to the right on the bell curve, it doesn't surprise me at all that the tax rate as a percentage of sales price would be similarly offset to the left. I think it would have made the analysis better to have also ranked the dollar value of tax revenue per dwelling unit, and you would see they are paying an extremely high share under that metric. But then the title of the article would have to be "Why Billionaires Pay the Most Per Capita Property Taxes in New York".
Another way to look at it, is if the tax rate were 1.7% instead of 0.017% then the building could not have been built. If the rate were 0.17% the sales price would have been closer to $10 million than $100 million. I think there is no scenario where the city gets the tower, the condo sells for $100 million, AND the city takes even .17% each year in property taxes.
The article reads like the city paid to build the tower and is giving the units away rent-free. It just seems like such a distorted view of the full macroeconomic impact, when in fact NYC is getting exactly what Bloomberg meant when he said he hoped the billionaires to move in.
<i>isn't the point of the article that they are not taxed at the rate of a normal condo vis-a-vis their sales price?</i>
That isn't the point I'm making. Ultra-luxe condos are taxed the same way as normal condos are. It's the same mechanism. But the formula is crude and can't anticipate that there might be condo buildings with no comparison in the rental market.
<i>I think it would have made the analysis better to have also ranked the dollar value of tax revenue per dwelling unit</i>
The charts I included do show the dollar value of tax revenue per 10 units that sold for extraordinary prices. Perhaps these dollar values (e.g., $17,000 per year) do seem very high, but that is a matter of perspective. If you are the owner of a $5 million condo, and you pay $17,000 annually in property taxes, it will seem outrageous that the owner of a $100 million condo pays the same. This is why it's important to compare effective property tax rates. Just comparing numbers or digits is meaningless in a discussion about in/equity.
<i>I don't think there is a scenario where the city gets the tower, the condo sells for $100 million, AND the city gets 1.7% each year in property taxes.</i>
Perhaps not. I still think the burden is on the city and state to demonstrate why the inequity is warranted.
That isn't the point I'm making. Ultra-luxe condos are taxed the same way as normal condos are. It's the same mechanism. But the formula is crude and can't anticipate that there might be condo buildings with no comparison in the rental market.
<i>I think it would have made the analysis better to have also ranked the dollar value of tax revenue per dwelling unit</i>
The charts I included do show the dollar value of tax revenue per 10 units that sold for extraordinary prices. Perhaps these dollar values (e.g., $17,000 per year) do seem very high, but that is a matter of perspective. If you are the owner of a $5 million condo, and you pay $17,000 annually in property taxes, it will seem outrageous that the owner of a $100 million condo pays the same. This is why it's important to compare effective property tax rates. Just comparing numbers or digits is meaningless in a discussion about in/equity.
<i>I don't think there is a scenario where the city gets the tower, the condo sells for $100 million, AND the city gets 1.7% each year in property taxes.</i>
Perhaps not. I still think the burden is on the city and state to demonstrate why the inequity is warranted.
HTML doesn't work in this forum, apparently. In any event thanks for reading.
but rather, the city can benefit from the investment that follows
Offering tax abatements to attract "investment" in a community is like offering ballooning ARMs to attract long-term home ownership: the incentives are set up to cause exactly the opposite of the stated goal.
Offering tax abatements to attract "investment" in a community is like offering ballooning ARMs to attract long-term home ownership: the incentives are set up to cause exactly the opposite of the stated goal.
"he didn't mean so that the city could literally confiscate their assets"
well, I wouldn't put it past him.
well, I wouldn't put it past him.
You're acting like the uber rich wouldn't be in New York anyways.
One of the conditions required for a condo to receive generous tax breaks (which it passes on to the tenants) is that they build affordable housing.
>As originally designed, the program requires to allocate at least 20 percent of their units to low-income families, in return for tax breaks of up to 80 percent. It's a badly kept secret in Manhattan that the program is often used by luxury developers.
One57 used a popular loophole in the law that allowed the developers to take the tax benefit for the building overlooking the park, but fund the affordable housing units in another location. One57 bought credits or "certificates" that helped fund those affordable housing units in outer bouroughs, according to city records. [0]
This is all part of a misguided housing policy in New York that focuses on "affordable" housing. This results in housing that is below market and a few lucky people that get in. For instance, one new building that got a lot of attention for having a separate door for the subsidized tenants (dubbed the "poor door" by the media) has received 88,000 applications for 55 subsidized units. [1]
In my opinion, if the government wanted to subsidize the less fortunate, they should provide a cash subsidy for the individual to use as see fit. Forcing someone to take the entire value of that subsidy in the form of a housing credit is silly. For example, if you force developers to charge only $1000 for a $5000 apartment, you're essentially transferring $4,000 from landlord to tenant as a housing credit. I would prefer the individual receive $4,000 cash and be able to choose how to spend that amount, or somewhere in-between. I doubt most would use the entirety of that amount on better housing.
[0] http://www.cnbc.com/id/49360274 [1] http://www.nytimes.com/2015/04/21/nyregion/poor-door-buildin...
>As originally designed, the program requires to allocate at least 20 percent of their units to low-income families, in return for tax breaks of up to 80 percent. It's a badly kept secret in Manhattan that the program is often used by luxury developers.
One57 used a popular loophole in the law that allowed the developers to take the tax benefit for the building overlooking the park, but fund the affordable housing units in another location. One57 bought credits or "certificates" that helped fund those affordable housing units in outer bouroughs, according to city records. [0]
This is all part of a misguided housing policy in New York that focuses on "affordable" housing. This results in housing that is below market and a few lucky people that get in. For instance, one new building that got a lot of attention for having a separate door for the subsidized tenants (dubbed the "poor door" by the media) has received 88,000 applications for 55 subsidized units. [1]
In my opinion, if the government wanted to subsidize the less fortunate, they should provide a cash subsidy for the individual to use as see fit. Forcing someone to take the entire value of that subsidy in the form of a housing credit is silly. For example, if you force developers to charge only $1000 for a $5000 apartment, you're essentially transferring $4,000 from landlord to tenant as a housing credit. I would prefer the individual receive $4,000 cash and be able to choose how to spend that amount, or somewhere in-between. I doubt most would use the entirety of that amount on better housing.
[0] http://www.cnbc.com/id/49360274 [1] http://www.nytimes.com/2015/04/21/nyregion/poor-door-buildin...
Direct cash payment is always better than subsidies. Subsidized housing simply transfers money to property owners.
In a sellers market, cash transfers areeffectively subsidies -- the landlord consumes all the renter's ability to pay.
> Direct cash payment is always better than subsidies.
Because you say so?
Direct cash benefits have one effect, rent regulation has another. It depends on what you are trying to achieve.
I am always perplexed when people talk about NYC housing policy and how it's self-apparently and obviously being done wrong, they invariably fail to note that it's the most desirable and culturally important city in the Western Hemisphere.
Because you say so?
Direct cash benefits have one effect, rent regulation has another. It depends on what you are trying to achieve.
I am always perplexed when people talk about NYC housing policy and how it's self-apparently and obviously being done wrong, they invariably fail to note that it's the most desirable and culturally important city in the Western Hemisphere.
I think a better measure of whether housing policy has succeeded in New York is a measure of the cost of housing. In that case, New York's housing policy has not stopped housing prices from increasing. You could argue that the situation would be worse without it though.
> Because you say so?
I'm not the commenter, but I think cash is better precisely because I don't know what would be better for the recipient. It's pretty arrogant to assume that you know what is right for someone. To say that a $4,000 transfer should be used on housing and housing alone is an insult to the person receiving the benefit, as though that person cannot think or make decisions for themselves.
> Because you say so?
I'm not the commenter, but I think cash is better precisely because I don't know what would be better for the recipient. It's pretty arrogant to assume that you know what is right for someone. To say that a $4,000 transfer should be used on housing and housing alone is an insult to the person receiving the benefit, as though that person cannot think or make decisions for themselves.
> I think a better measure of whether housing policy has succeeded in New York is a measure of the cost of housing.
Thus, we can conclude that by the same metric that the most successful civic and urban policies are employed in rural Nebraska and West Texas.
Perhaps that's actually not the best way to measure the success of a city?
> I'm not the commenter, but I think cash is better precisely because I don't know what would be better for the recipient. It's pretty arrogant to assume that you know what is right for someone.
Perhaps. But what if, instead of making a decision based on what's better for some arbitrary recipient, you wanted to make decisions that would increase the likelihood of having a vibrant and diverse urban environment with people that have various economic and cultural roles to play interwoven into the fabric of the city's housing stock. What if you placed stability and continuity as higher values in your trade off calculations than maximizing economic efficiency?
Again, my argument is a plea for empiricism. New York is a staggeringly successful city, one of the world's most desirable and influential places, with an incredible culture of residents. I always wonder if people have actually paused to notice that when they start evaluating housing policy.
Thus, we can conclude that by the same metric that the most successful civic and urban policies are employed in rural Nebraska and West Texas.
Perhaps that's actually not the best way to measure the success of a city?
> I'm not the commenter, but I think cash is better precisely because I don't know what would be better for the recipient. It's pretty arrogant to assume that you know what is right for someone.
Perhaps. But what if, instead of making a decision based on what's better for some arbitrary recipient, you wanted to make decisions that would increase the likelihood of having a vibrant and diverse urban environment with people that have various economic and cultural roles to play interwoven into the fabric of the city's housing stock. What if you placed stability and continuity as higher values in your trade off calculations than maximizing economic efficiency?
Again, my argument is a plea for empiricism. New York is a staggeringly successful city, one of the world's most desirable and influential places, with an incredible culture of residents. I always wonder if people have actually paused to notice that when they start evaluating housing policy.
Perhaps effectiveness of housing policy could be measured by the price changes as population grows. Texas for instance has very loose zoning regulations, with high population growth and below median home prices. Also, Texas didn't have the huge run-up in housing appreciation as did many other states, and hence virtually no subsequent crash [0]. During that time Texas has grown in population substantially. To be fair, New York didn't have much of a crash either but the housing market is very expensive.
I love NY. I choose to live here. I don't like high rent though.
I'm just a little weary of allowing political bodies to determine the right "urban environment" as these same bodies have used their powers for segregation. Sure, diversity sounds good, but it sometimes leaves a bad taste in my mouth. For instance, ~70% of Stuyvesant High School is Asian and admission is based solely on a test. Should Asian's be prevented from attending?
[0] http://static.cdn-seekingalpha.com/uploads/2015/5/11/sauploa... [1] http://seekingalpha.com/article/3167336-houston-wavers-but-t...
I love NY. I choose to live here. I don't like high rent though.
I'm just a little weary of allowing political bodies to determine the right "urban environment" as these same bodies have used their powers for segregation. Sure, diversity sounds good, but it sometimes leaves a bad taste in my mouth. For instance, ~70% of Stuyvesant High School is Asian and admission is based solely on a test. Should Asian's be prevented from attending?
[0] http://static.cdn-seekingalpha.com/uploads/2015/5/11/sauploa... [1] http://seekingalpha.com/article/3167336-houston-wavers-but-t...
The high rent is deliberate policy. You are kinda missing the point. The reason NYC is safe now whereas it was a war-zone in the 80s is all the criminals had to move away because of higher rent. The government deliberately got rid of most of the section 8 housing and constricted the supply of cheap apartments. They want to price people out.
There are still a lot of housing projects throughout Manhattan, sometimes adjacent to very expensive housing. An example is the largest projects in Manhattan, Baruch Houses, 17 buildings, 27 acres. This is right across the street from The Ludlow which most recently rented a one-bedroom for $4,485 a month.
Well you have to factor in population change. If 1 million people are paying stable rent, and population is growing so 0.5 million new residents pay more, that's not a net failure.
London is leagues ahead of New York in global importance.
Yes we have heard of it. I have high hopes for the place, my understanding is that they have even learned to speak a passable version of English over there.
I live in a state which does something similar to this -- the sales tax is extremely high, and property taxes are laughably low. I have never cared to investigate it, but my hunch is it protects those who are already land owners, and therefor the economic elite, and burdens renters and other lower income citizens with a disproportionate tax burden.
Find your state in Appendix B (Page 27) here:
http://www.itep.org/pdf/whopaysreport.pdf
To see just how much more difficult they make it for the poor.
http://www.itep.org/pdf/whopaysreport.pdf
To see just how much more difficult they make it for the poor.
My quibble with your assertion is that if property taxes were higher it would also hit the lower income citizens as well. Those property taxes would just be passed along as an increase in their rent.
Also it isn't the low income who are being taxed to death it is those who "middle class" who are subsidizing everything. Effectively only 50% of those who file taxes actually owe any taxes.
Also it isn't the low income who are being taxed to death it is those who "middle class" who are subsidizing everything. Effectively only 50% of those who file taxes actually owe any taxes.
Nope. If the landlords could raise the rates, they already would. This whole "cost X gets passed onto consumers" flies in the face of basic economics: the price is what people are willing to pay, separated from what costs/fees/taxes are applied to the supplier.
Nope? Who would rent property for less than it costs to carry it? If you want to speculate on real estate there are much better ways than renting to low-income tenants below cost.
Speaking of Econ 101, when taxes shift the supply curve, what happens next? Some renters are priced out, others get less house for more money. Under no circumstance does some fat-cat middle man reach into their own pocket to help a brother out.
Speaking of Econ 101, when taxes shift the supply curve, what happens next? Some renters are priced out, others get less house for more money. Under no circumstance does some fat-cat middle man reach into their own pocket to help a brother out.
Sorry, but you're just saying the same thing: that the basic economic principle of price being determined by what the market will bear doesn't apply to housing.
Either people will pay more, in which case landlords will raise their rents until people stop being willing to pay more, or people won't pay more, no matter what the cost to the landlord.
Nowhere in this does the landlord show up with a tax document and say "see folks, now you gotta pay MOAR TAX".
Either people will pay more, in which case landlords will raise their rents until people stop being willing to pay more, or people won't pay more, no matter what the cost to the landlord.
Nowhere in this does the landlord show up with a tax document and say "see folks, now you gotta pay MOAR TAX".
I'm saying that increased taxes cause landlords to try to increase rent or exit the rental market due to the increased expense, leading to decreased rental supply at a higher average cost. In a competitive rental market, you are renting the property for pretty much exactly what it costs you to rent it. If free money rained from the sky by pushing the "rent" button, more people would do it, increasing supply, and decreasing cost.
Similarly, lowering the tax rate would provide greater profit to landlords, which would cause new entrants to the rental market, leading to greater supply and a lower average cost.
That's just the basic theory of competitive markets, at least as I remember it. It starts with the 'X' shaped chart of supply vs demand which you draw over and over in Microeconomics 101. Macro takes the concepts from Micro and connects the dots to get from increasing taxes -> higher rental prices.
Similarly, lowering the tax rate would provide greater profit to landlords, which would cause new entrants to the rental market, leading to greater supply and a lower average cost.
That's just the basic theory of competitive markets, at least as I remember it. It starts with the 'X' shaped chart of supply vs demand which you draw over and over in Microeconomics 101. Macro takes the concepts from Micro and connects the dots to get from increasing taxes -> higher rental prices.
There are many leases with tax escalation clauses included. My last two apartment leases (2000-2002 and 2002-2007) in MA included those (3-part) clauses. http://www.masslegalhelp.org/housing/private-housing/ch5/tax...
The reasoning is multi-part:
1. It aligns tenant and landords by encouraging renters to vote against property tax increases. Renters can now think whether the services increase is worth the tax increase instead of only worrying about the benefit side as the cost side is 100% someone else problem absent an escalator.
2. It allows landlords to offer their property for rent without including a "holdback" for their guess as to their property tax increase.
The reasoning is multi-part:
1. It aligns tenant and landords by encouraging renters to vote against property tax increases. Renters can now think whether the services increase is worth the tax increase instead of only worrying about the benefit side as the cost side is 100% someone else problem absent an escalator.
2. It allows landlords to offer their property for rent without including a "holdback" for their guess as to their property tax increase.
If that were true, then how come home prices drop when interest rates rise? Are taxes somehow special?
Home prices drop because affordability per $ financed decreases. How is that in contradiction with increasing taxes leading to increasing rent cost?
Take an extreme example, if taxes were $5000/mo for a 800 sq ft 1BR then rent for a 1BR would be greater than $5000/mo. There might be very few units renting at that price and home prices would approach zero or could even become significantly negative if owners had no other way to escape the tax bill.
You see this for some properties in Detroit where the tax bill is more of a liability than the house and land are worth so the plot can be purchased for $1 for any sucker who will take it (or is willing to carry to tax liability in the hopes the asset will eventually appreciate beyond the accumulated taxes)
Take an extreme example, if taxes were $5000/mo for a 800 sq ft 1BR then rent for a 1BR would be greater than $5000/mo. There might be very few units renting at that price and home prices would approach zero or could even become significantly negative if owners had no other way to escape the tax bill.
You see this for some properties in Detroit where the tax bill is more of a liability than the house and land are worth so the plot can be purchased for $1 for any sucker who will take it (or is willing to carry to tax liability in the hopes the asset will eventually appreciate beyond the accumulated taxes)
Except the price people would be willing to pay would be more as rents increased. You have to live somewhere.
Landlords don't eat tax increases. Anywhere, ever.
Landlords don't eat tax increases. Anywhere, ever.
If all the people are currently getting a deal on rents, then all the rents are too low, and the landlords will start raising rents until they stabilize on what people are willing to pay. Nowhere does the landlords' cost come into this equation.
This whole "taxes get passed onto the consumers" fallacy is just another bit of anti-tax/anti-gubmint propaganda.
This whole "taxes get passed onto the consumers" fallacy is just another bit of anti-tax/anti-gubmint propaganda.
You're right, but in the end you're wrong. The missing step here is people who own properties have other places they can put their money. If, as a result of increased taxes, owning rentals isn't bringing in enough profit to justify the extra hassle, there will be people getting out of the business.
This trickles down to developers not getting the prices they need to get and not building new developments. With constrained supply rents will go up.
The other option is landlords will do the same sort of "decontenting" car companies do in a tight market. They'll cut maintenance staff, paint less, spend less on renovations. Over time your rent will be the same, but the value of what you receive will go down.
The idea that "taxes get passed on to consumers" is not a fallacy - you can see it at work every time taxes go up. Business owners are like anybody else - when their wages get cut they take a look at their options.
This trickles down to developers not getting the prices they need to get and not building new developments. With constrained supply rents will go up.
The other option is landlords will do the same sort of "decontenting" car companies do in a tight market. They'll cut maintenance staff, paint less, spend less on renovations. Over time your rent will be the same, but the value of what you receive will go down.
The idea that "taxes get passed on to consumers" is not a fallacy - you can see it at work every time taxes go up. Business owners are like anybody else - when their wages get cut they take a look at their options.
>My quibble with your assertion is that if property taxes were higher it would also hit the lower income citizens as well. Those property taxes would just be passed along as an increase in their rent.
Rent is determined by supply of housing and demand for housing, not taxation. Property owners would eat the cost and the price of properties would probably drop accordingly (higher taxes = a less attractive purchase).
Rent is determined by supply of housing and demand for housing, not taxation. Property owners would eat the cost and the price of properties would probably drop accordingly (higher taxes = a less attractive purchase).
It's true in SF, NY and few other places in US where cost of housing is determined by ability to pay. In the rest of the country cost of housing is a cost of building a house/rental property with a reasonable margin on top - with almost no correlation with local ability to pay (as long as it's higher than cost of building or maintaining a housing unit). If you increase property taxes, it will increase rental prices.
So you're saying that supply and demand only works in SF, NY and a few other places?
I am saying that supply and demand are not working in SF/NY and a few other places. Or to be more exact supply is non-elastic - increase in demand does not increase supply. In cities with available land if there is a demand for housing, you just build more housing.
It's just another way to shift the tax burden from the rich to the poor.
"The values of these new condos are being assessed at just a fraction of what they're worth. And buyers are paying only a fraction of that fraction in property taxes."
This is true in every state that I have lived in. The tax-assessed value is lower than the market value, and the tax rate is a small portion of the tax-assessed value.
The tax-assessed value is lower because the assessors use a historical comparative market analysis, which looks to the past to determine a current price. Free market buyers who assess the property for the purchase of making a purchase offer look at comparative historical values, but they also look to what the future market will be. A rising market will command a higher price than a sinking market. The same is true of the stock markets.
This effect is especially true for unique locations or other outlier properties that can have grossly higher market values than tax-assessed values. I am not surprised then that this is a problem in a place like Manhattan, New York.
Also, some states limit the annual increase of the tax-assessed value. In California it is 1%. If the market increase is 8%, the difference is going to be large quickly.
This is true in every state that I have lived in. The tax-assessed value is lower than the market value, and the tax rate is a small portion of the tax-assessed value.
The tax-assessed value is lower because the assessors use a historical comparative market analysis, which looks to the past to determine a current price. Free market buyers who assess the property for the purchase of making a purchase offer look at comparative historical values, but they also look to what the future market will be. A rising market will command a higher price than a sinking market. The same is true of the stock markets.
This effect is especially true for unique locations or other outlier properties that can have grossly higher market values than tax-assessed values. I am not surprised then that this is a problem in a place like Manhattan, New York.
Also, some states limit the annual increase of the tax-assessed value. In California it is 1%. If the market increase is 8%, the difference is going to be large quickly.
In general when you have super complex laws, the law will always help rich and powerful simply because they will be the only once who will have the resources to pass through the myriad laws.
To me, Property should not be a investment option, or Heavy tax ( 50%+ ) on Property investment profits.
Everyone deserve to have a place to live, large or small. The property market ( especially after recent years of QE ) has skyrocket to a point where many can not afford to live.
And if you think New York is bad, take a look in Hong Kong.
And if you think New York is bad, take a look in Hong Kong.
They need to unify taxes on residential units in a revenue neutral way. A unified rate should be selected that reduces taxes on ordinary units by the same amount as the extra billion from the superrich. This should make a change more politically palatable.
The biggest beneficiaries of the current system are the property developers. Fairer property taxes on these high end units may mean lower sales prices, and that seems just fine.
One error in the article is the idea that landlords pass through taxes as higher rents. That completely misunderstands landlord psychology. Landlords will charge as high a tent as they can. Tax rates affect the value of the property when sold by reducing the cap rate, they don't affect rents.
Fairness shouldn't impact the requirements for low income units. Those should be traded for the right to build, not for a tax break.
The article suggests the complexity in the laws are based on the difficulties in 1980 of calculating year to year increases in property values. Much more data is available now and lots of work has gone into such algorithms, that should be less of a barrier now. It's probably less important that the algorithm be perfect than that the methodology should be apply equally to everyone.
The biggest beneficiaries of the current system are the property developers. Fairer property taxes on these high end units may mean lower sales prices, and that seems just fine.
One error in the article is the idea that landlords pass through taxes as higher rents. That completely misunderstands landlord psychology. Landlords will charge as high a tent as they can. Tax rates affect the value of the property when sold by reducing the cap rate, they don't affect rents.
Fairness shouldn't impact the requirements for low income units. Those should be traded for the right to build, not for a tax break.
The article suggests the complexity in the laws are based on the difficulties in 1980 of calculating year to year increases in property values. Much more data is available now and lots of work has gone into such algorithms, that should be less of a barrier now. It's probably less important that the algorithm be perfect than that the methodology should be apply equally to everyone.
Anything that affects the cap rate also affects the marginal conversion of that building from rentals into owner-occupant usage (especially in jurisdictions where there's a homestead or owner-occupant partial abatement of taxes).
It may not seem like there's a direct effect because Unit 2 on 123 Main Street is still a rental for the same price after a $50/mo tax increase. But, some other unit ends up being sold to an end-user (or a condo-conversion developer) instead of staying as a rental. Across the body of rentals, I believe that tax increases show up in rent over the long-run. Landlords aren't in the business to give renters breaks. (Nor are they evil Scrooge McDucks; the good ones are just smart businesspeople who can do math and put up with people... :) )
It may not seem like there's a direct effect because Unit 2 on 123 Main Street is still a rental for the same price after a $50/mo tax increase. But, some other unit ends up being sold to an end-user (or a condo-conversion developer) instead of staying as a rental. Across the body of rentals, I believe that tax increases show up in rent over the long-run. Landlords aren't in the business to give renters breaks. (Nor are they evil Scrooge McDucks; the good ones are just smart businesspeople who can do math and put up with people... :) )
I wonder how many of these flats are occupied. In London such flats are investments for a balance sheet and remain unoccupied.
There has got to be a really awesome AirBnB type service in here for the rich but not that rich types. All that unused property, all those traveling rich people for whom a hotel is too 'exposed'. Connect those dots people! :-)
This already exists in most elite social circles, albeit informally. A shared realtor, you happen to own a yacht slip next to someone at St. Barts, serendipitous private jet flights, etc. etc.
When everyone you know owns 3+ homes and would be able to easily cover any sort of damages that they cause people are much more willing to loan out keys and open their homes, especially when they aren't there.
I'm nowhere near that level of wealth, but I've been more than fortunate to be invited on some trips that follow this pattern. I've even heard from the horses mouth how someone literally spent two years after college traveling across the world, staying in nothing but her parent's friends' apartments/condos/houses with other socialites. You can get real deep into social psychology with this, but the social rules are different for people with such socio-economic standing. Money/assets are no longer dominant social currencies (and thus more willing to be risked)... it's more personality, looks/style, and tangential social connection.
i.e. I care a lot less that you drive a Ferrari and a lot more that you can get me into X social event through Y connection, or that you can give me good advice on popular art. Gotta keep up with the Jones' somehow, and when everyone has too much money you have to find other social signals.
When everyone you know owns 3+ homes and would be able to easily cover any sort of damages that they cause people are much more willing to loan out keys and open their homes, especially when they aren't there.
I'm nowhere near that level of wealth, but I've been more than fortunate to be invited on some trips that follow this pattern. I've even heard from the horses mouth how someone literally spent two years after college traveling across the world, staying in nothing but her parent's friends' apartments/condos/houses with other socialites. You can get real deep into social psychology with this, but the social rules are different for people with such socio-economic standing. Money/assets are no longer dominant social currencies (and thus more willing to be risked)... it's more personality, looks/style, and tangential social connection.
i.e. I care a lot less that you drive a Ferrari and a lot more that you can get me into X social event through Y connection, or that you can give me good advice on popular art. Gotta keep up with the Jones' somehow, and when everyone has too much money you have to find other social signals.
I'm nowhere near that level of wealth, but I've been more than fortunate to be invited on some trips that follow this pattern.
I was fortunate to end up with a bunch of scholarships and funding to let me go to a much more expensive college than I would ever have otherwise been able to afford. Guy who lived across the hall from me was the son of a pharma exec, and I ended up learning a lot about how that stratum of society works.
And that's pretty close to it. I've known people who literally can say "oh, yeah, I don't need a hotel on that Europe trip, a friend of the family has a castle I can stay in".
I was fortunate to end up with a bunch of scholarships and funding to let me go to a much more expensive college than I would ever have otherwise been able to afford. Guy who lived across the hall from me was the son of a pharma exec, and I ended up learning a lot about how that stratum of society works.
And that's pretty close to it. I've known people who literally can say "oh, yeah, I don't need a hotel on that Europe trip, a friend of the family has a castle I can stay in".
That's ridiculous, there are no yacht slips in St Barth, the only harbor is in Gustavia and even the superyachts Med-moor on the quay.
We recently stayed in (what was marketed as) one of the top residential, luxury skyrise apartment blocks in Thailand. For pennies.
It was clear that it was only supposed to be for long term residents and short-term tenants airbnb/tripadvisor-rentals types were "unwelcome" (I imagine to maintain the exclusive feel of the place). They literally had signs up implying it was illegal to be a short-term renter there and, if caught, you might be refused access to facilities.
However, the apartment (and the apartment blocks) was so obviously empty of long term residents, it was sad to see such a waste of space.
The owner of our apartment was someone in Oxford who I imagined was just trying to get a little money in just to pay the service charge while waiting for his capital investment to mature.
Despite the luxury of the place, this skyrise was like a dead zone. I felt sorry for the actual residents because there was no community for them.
And to loop around to a point related to your post, it didn't make for a good holiday experience.
Actually, you can test these words of wisdom. Luxury is expensive so few get to experience it. However, in Thailand it is cheap so try it out.
One thing it will teach you is that luxury is fun for a minute, but it may not make you happy. Worth trying it first before you chase it too hard in your home country and realise what a mistake it might be to dedicate too much time in the pursuit of it.
It was clear that it was only supposed to be for long term residents and short-term tenants airbnb/tripadvisor-rentals types were "unwelcome" (I imagine to maintain the exclusive feel of the place). They literally had signs up implying it was illegal to be a short-term renter there and, if caught, you might be refused access to facilities.
However, the apartment (and the apartment blocks) was so obviously empty of long term residents, it was sad to see such a waste of space.
The owner of our apartment was someone in Oxford who I imagined was just trying to get a little money in just to pay the service charge while waiting for his capital investment to mature.
Despite the luxury of the place, this skyrise was like a dead zone. I felt sorry for the actual residents because there was no community for them.
And to loop around to a point related to your post, it didn't make for a good holiday experience.
Actually, you can test these words of wisdom. Luxury is expensive so few get to experience it. However, in Thailand it is cheap so try it out.
One thing it will teach you is that luxury is fun for a minute, but it may not make you happy. Worth trying it first before you chase it too hard in your home country and realise what a mistake it might be to dedicate too much time in the pursuit of it.
But you still have to pay council tax and councils can change absentee owners more.
But compared to the USA the taxes are very low even for a 20 million penthouse.
But compared to the USA the taxes are very low even for a 20 million penthouse.
The system in California is pretty ideal. I say this as a property owner there.
Homes are assessed by the most recent sale price. Both the city and the home owner can appeal that assessment-
So in cases where you overpay for whatever reason you can get it reduced, as well as if your home falls in value after you buy it - In cases where you sell a friend your house for a dollar, the city can appeal the 'last sale price' to get a market assessment. If you do a major addition, the home gets reassessed. Assessments are capped at something like 1-2% increase a year max, so you can budget increases accordingly, thanks to prop 13.
This compared to florida, where my home purchase/sale price has nothing to do with the appraisal. Instead they look at all 'comparable' homes and average out the assessment that way. That has the disadvantage of having half the people underpaying for their property tax and half overpaying.
Homes are assessed by the most recent sale price. Both the city and the home owner can appeal that assessment-
So in cases where you overpay for whatever reason you can get it reduced, as well as if your home falls in value after you buy it - In cases where you sell a friend your house for a dollar, the city can appeal the 'last sale price' to get a market assessment. If you do a major addition, the home gets reassessed. Assessments are capped at something like 1-2% increase a year max, so you can budget increases accordingly, thanks to prop 13.
This compared to florida, where my home purchase/sale price has nothing to do with the appraisal. Instead they look at all 'comparable' homes and average out the assessment that way. That has the disadvantage of having half the people underpaying for their property tax and half overpaying.
"In cases where you sell a friend your house for a dollar, the city can appeal the 'last sale price' to get a market assessment"
In France, municipalities can preempt real estate transactions as long as they offer more than the buyer, so the city would get your house for two dollars.
This is mostly to discourage under-reporting of transaction prices, as property ownership change taxes are a major revenue source for cities...
In France, municipalities can preempt real estate transactions as long as they offer more than the buyer, so the city would get your house for two dollars.
This is mostly to discourage under-reporting of transaction prices, as property ownership change taxes are a major revenue source for cities...
Indiana has a hard cap of 1% on property tax AFAIK.
Nobody is discussing the fact that the people voted into power on grounds that they would "do something about this" have been in power and re elected on those grounds for * decades*, have done nothing about it but make more exploitable loopholes, and whine about how something must be done and they're the people to do it so must be re elected. Stop voting for the same group of Democrats who keep not solving the problem.
I am not even from USA, but this whole thing seems a bit off to me.
As far as I understood, one of the core goals of all these subsidies (I'm using this phrase to group all the mechanisms that change total cost of ownership, be it tax rate or whatever) were designed to keep people from being thrown out of their homes by rising taxes due to rising value and creating affordable housing. I base my comment on this.
First of all property prices can rise due to [fake] economic growth/housing bubbles. In that case most property values rise proportionally, therefore no change here - housing gets more expensive in general.
Second, property prices can rise due to area getting more attractive or just having more luxurious properties. And if you can no longer afford living there due to rising taxes - this means that you just happen to live in an area that is out of your class. Income change (e.g. loss of a job) might throw a family into a lower class. Is it unreasonable to expect to relocate? Personally I don't think so. The same should apply to rising property costs in a neighbourhood.
Last, any regulation differences in the same area (housing in this case) creates non-free, regulated market and as a consequence actual prices might differ from expected "natural" free-market values by quite a margin or just cancel the intended effect out. For example artificially lowering construction prices in a new neighbourhood (tax exemptions; city funded utilities installation: electricity, plumbing, etc.) might create demand higher than supply effectively cancelling out the intended price reduction. Of course city planners might want to prohibit industrial buildings in some areas, but these are in no direct competition with living places.
I believe that the best solution is to simply have a fixed tax rate based on property value. The biggest challenge here is to calculate real market value without actually transferring ownership. The obvious choice of sell price is only valid for several years, while property can be held for decades. Valuation based on rental price is off if one can rent from wife. Yes, there are loopholes to plug and mechanisms to adjust billable property value without sudden spikes to place. The only way to make housing more available to the poor I see is to lower billable property value if it contains at least x units and maximum household income averaged over y years is less than z, legally placing tax burden on renters.
As far as I understood, one of the core goals of all these subsidies (I'm using this phrase to group all the mechanisms that change total cost of ownership, be it tax rate or whatever) were designed to keep people from being thrown out of their homes by rising taxes due to rising value and creating affordable housing. I base my comment on this.
First of all property prices can rise due to [fake] economic growth/housing bubbles. In that case most property values rise proportionally, therefore no change here - housing gets more expensive in general.
Second, property prices can rise due to area getting more attractive or just having more luxurious properties. And if you can no longer afford living there due to rising taxes - this means that you just happen to live in an area that is out of your class. Income change (e.g. loss of a job) might throw a family into a lower class. Is it unreasonable to expect to relocate? Personally I don't think so. The same should apply to rising property costs in a neighbourhood.
Last, any regulation differences in the same area (housing in this case) creates non-free, regulated market and as a consequence actual prices might differ from expected "natural" free-market values by quite a margin or just cancel the intended effect out. For example artificially lowering construction prices in a new neighbourhood (tax exemptions; city funded utilities installation: electricity, plumbing, etc.) might create demand higher than supply effectively cancelling out the intended price reduction. Of course city planners might want to prohibit industrial buildings in some areas, but these are in no direct competition with living places.
I believe that the best solution is to simply have a fixed tax rate based on property value. The biggest challenge here is to calculate real market value without actually transferring ownership. The obvious choice of sell price is only valid for several years, while property can be held for decades. Valuation based on rental price is off if one can rent from wife. Yes, there are loopholes to plug and mechanisms to adjust billable property value without sudden spikes to place. The only way to make housing more available to the poor I see is to lower billable property value if it contains at least x units and maximum household income averaged over y years is less than z, legally placing tax burden on renters.
Tax breaks made to protect the poor all too often benefit the wealthiest the most. Which causes the most harm to the group it was meant to protect. Oops.
I support equality in taxing. Alas such things are labeled regressive but it's always the poor who end up under the bus. Complicated progressive tax schemes always benefit the rich more than the poor. Always.
I support equality in taxing. Alas such things are labeled regressive but it's always the poor who end up under the bus. Complicated progressive tax schemes always benefit the rich more than the poor. Always.
Progressive tax schemes don't need to be complicated.
Actually it's interesting to note the parallels of the relevant laws in New York with prop 13 in California, the idea was to encourage and enable people to stay in their homes when inflation was high in the 1970's, but weren't rolled back, creating issues.
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Wouldn't another city just adopt similar systems and over time start to attract billionaires? I'm sure that this effects their decision of where they purchase real estate.
I am assuming having rich people in your city is a good thing, but I genuinely think it is overall.
I am assuming having rich people in your city is a good thing, but I genuinely think it is overall.
The article quotes Michael Bloomberg as saying "If we can find a bunch of billionaires around the world to move here, that would be a godsend". But is attracting billionaires to your city a good thing? I can imagine it would be if they paid their taxes and contributed to the local economy, not just themselves but via their companies and personnel. But the article suggests in many cases they don't, i.e. they pay lower taxes and barely visit let alone invest outside the property market.
In order for it to work, it has to be a place that billionaires would want to be at in the first place. Something like this isn't going to work in the middle of nowhere, for example.
> Wouldn't another city just adopt similar systems and over time start to attract billionaires?
They're willing to pay $100 million for apartments that'd probably go for a tenth or less of that in any other city. Let's not pretend having to pay a bit more tax is going to drive them to live in Tulsa. The prestige of living in NYC is the main draw, I'd imagine.
They're willing to pay $100 million for apartments that'd probably go for a tenth or less of that in any other city. Let's not pretend having to pay a bit more tax is going to drive them to live in Tulsa. The prestige of living in NYC is the main draw, I'd imagine.
Remember that real estate is about three things: location, location, and location. You bribe your way into tax abatements for luxury condos basically anywhere, but there's currently no way to bribe someone to move Central Park, the museums and arts centers and all the restaurants and other New-York-specific stuff that actually attracts people to within a few blocks of your cheap-tax-rate tower in Wyoming.
You're not being fair to his or her question.
Yes, most cities cannot attract billionaires like New York. But London or Hong Kong can. And London has been much more successful at it than New York lately.
Fun fact: the states with the most billionaires per capita are... Oklahoma, Oregon, and Ohio. New York comes in at #4.
Yes, most cities cannot attract billionaires like New York. But London or Hong Kong can. And London has been much more successful at it than New York lately.
Fun fact: the states with the most billionaires per capita are... Oklahoma, Oregon, and Ohio. New York comes in at #4.
Hmm, your fun fact (http://en.wikipedia.org/wiki/List_of_U.S._states_by_the_numb...) is fun, I agree, but also misleading.
According to the above link, Oklahoma has 5 billionaires, Oregon has 2, Ohio has 4. New York, at #4 per capita, has 88; California has 111. The "surprise" is mostly due to low counts.
For any process (like wealth) with large extremes, if you subdivide it into bins, you are going to get local extrema just due to low counts. The only mildly informative thing is Oklahoma (oil and gas). Ohio is a few elderly (ages 77, 74, 70) manufacturing folks -- their count seems to have dipped to 3, according to http://www.forbes.com/billionaires/list/#version:static_sear..., which would remove Ohio from the top 3 per capita.
According to the above link, Oklahoma has 5 billionaires, Oregon has 2, Ohio has 4. New York, at #4 per capita, has 88; California has 111. The "surprise" is mostly due to low counts.
For any process (like wealth) with large extremes, if you subdivide it into bins, you are going to get local extrema just due to low counts. The only mildly informative thing is Oklahoma (oil and gas). Ohio is a few elderly (ages 77, 74, 70) manufacturing folks -- their count seems to have dipped to 3, according to http://www.forbes.com/billionaires/list/#version:static_sear..., which would remove Ohio from the top 3 per capita.
> the states with the most billionaires per capita are... Oklahoma, Oregon, and Ohio. New York comes in at #4.
In residence, perhaps.
Yet how many own a pied-à-terre in New York, while residing primarily elsewhere?
In residence, perhaps.
Yet how many own a pied-à-terre in New York, while residing primarily elsewhere?
These are the richest of the richest people anywhere. They live where they want to live. A billionaire doesn't move his whole existence across the country to save 10 million dollars in taxes.
But they don't even need to do that, in this instance.
The article stated $17k tax on a $100M (market value) condo. Assuming the buyer pays in cash, the property retains its value, and ignoring the condo fees, that person is paying $1417 a month for the option of living in one of the most prestigious places in the world.
I'm not an expert on housing costs in NYC, but that seems like a pretty good deal.
The article stated $17k tax on a $100M (market value) condo. Assuming the buyer pays in cash, the property retains its value, and ignoring the condo fees, that person is paying $1417 a month for the option of living in one of the most prestigious places in the world.
I'm not an expert on housing costs in NYC, but that seems like a pretty good deal.
That's flawed logic, as it's $100M + $1417/mo.
If you asked me if I wanted to rent that place for $1417 I would absolutely say yes. But I don't happen to have $100M lying around.
If you asked me if I wanted to rent that place for $1417 I would absolutely say yes. But I don't happen to have $100M lying around.
The wealth moves from $100M in cash to $100M in ultralux NYC condo. Absent some event that diminishes the value of ultralux NYC condos, the only real sacrifice is in liquidity. It's harder to spend a condo if you need to.
When you can pay cash for everything, the budgetary math is more oriented around periodic cash flows. Taxes and insurance and depreciation become monthly accounting expenses that have to be paid from monthly incomes. The actual sale price of the place is almost irrelevant.
What if you had so much money that you have already bought everything you ever wanted? Keeping it all is now just a matter of keeping the monthly expenses below the monthly incomes.
When you can pay cash for everything, the budgetary math is more oriented around periodic cash flows. Taxes and insurance and depreciation become monthly accounting expenses that have to be paid from monthly incomes. The actual sale price of the place is almost irrelevant.
What if you had so much money that you have already bought everything you ever wanted? Keeping it all is now just a matter of keeping the monthly expenses below the monthly incomes.
You still have to have at least a decent amount of that $100MM in cash to start with.
Yes. Yes, you do. But you also need to buy a Costco membership to shop there.
Having money makes it easier to save money, even on a much smaller scale.
If you can pay cash for your commuter car, you pay $15000. If you get a 48-month loan at 5%, you pay 10.5% more total over those 4 years. That additional expense is not added to the resale price of the car.
If you can pay cash for your house, you pay $250000. If you get a 360-month loan at 5%, you pay 93% more total over those 30 years. That additional cost is not added to the value of the property.
Loan interest is an expense that is consumed. It does not return to you as equity in any asset. Rent and taxes are similar, in that the money you pay does not return to you as retained value. They are gone, in the same way that a cake that is eaten cannot be saved for later.
If you're rich, you can establish an accident liability escrow account instead of buying car driver's insurance. You can effectively self-insure with a risk pool of one person. The money in the escrow account still earns interest. Not only do the people who do that not pay premiums, which are lost, they can keep all their money, and even pay themselves a little extra, for not causing accidents. But if they have one, no big deal. They pay for the damage, then top up the escrow account. Their premiums do not increase.
All you need to save money is to be rich. So simple. Everyone should do it, right?
That's what the extreme frugality crowd does. If you drastically reduce your living expenses, you can save more rapidly, and begin to take advantage of the lowered expense opportunities available to people with lots of savings, such as the incredibly simple elimination of all loan interest payment expenses. And that allows you to save more.
And the calculations don't care about how much you earn. The only thing that matters is what proportion of your income you can save, and how much your savings can return in excess of inflation.
But you can't just become rich by doing the things that rich people do. They already have their rich people membership cards; their discounts are not yet available to you. You have to get rich first, then do those things to stay rich or become richer.
Having money makes it easier to save money, even on a much smaller scale.
If you can pay cash for your commuter car, you pay $15000. If you get a 48-month loan at 5%, you pay 10.5% more total over those 4 years. That additional expense is not added to the resale price of the car.
If you can pay cash for your house, you pay $250000. If you get a 360-month loan at 5%, you pay 93% more total over those 30 years. That additional cost is not added to the value of the property.
Loan interest is an expense that is consumed. It does not return to you as equity in any asset. Rent and taxes are similar, in that the money you pay does not return to you as retained value. They are gone, in the same way that a cake that is eaten cannot be saved for later.
If you're rich, you can establish an accident liability escrow account instead of buying car driver's insurance. You can effectively self-insure with a risk pool of one person. The money in the escrow account still earns interest. Not only do the people who do that not pay premiums, which are lost, they can keep all their money, and even pay themselves a little extra, for not causing accidents. But if they have one, no big deal. They pay for the damage, then top up the escrow account. Their premiums do not increase.
All you need to save money is to be rich. So simple. Everyone should do it, right?
That's what the extreme frugality crowd does. If you drastically reduce your living expenses, you can save more rapidly, and begin to take advantage of the lowered expense opportunities available to people with lots of savings, such as the incredibly simple elimination of all loan interest payment expenses. And that allows you to save more.
And the calculations don't care about how much you earn. The only thing that matters is what proportion of your income you can save, and how much your savings can return in excess of inflation.
But you can't just become rich by doing the things that rich people do. They already have their rich people membership cards; their discounts are not yet available to you. You have to get rich first, then do those things to stay rich or become richer.
Many (most?) of these people don't even live in these apartments. In fact, developers actually use this as an argument in favor of new construction - it won't put any more pressure on local infrastructure, because no one will live here.
I should become a billionaire. Any advice?
>And buyers are paying only a fraction of that fraction in property taxes.
This just in, you don't pay 100% of your home's value in property taxes each year!
This just in, you don't pay 100% of your home's value in property taxes each year!
Property taxes in ALL of NY are excessively high.
Unrented residential property probably shouldn't have property tax. This is an ancient feudal carry over. Piles of retirees across the U.S., including NYC, bought property two epochs ago and in many cases can't afford the property taxes. Property taxes are regressive and unfair. Instead, counties should get their money from a combination of income tax and sales tax; OR at w.orst index the property tax to income.
Commercial property (that includes residential rental property in my book) maybe property tax still makes sense because landlords are pretty much always indexing rent to property value anyway.
Commercial property (that includes residential rental property in my book) maybe property tax still makes sense because landlords are pretty much always indexing rent to property value anyway.
Property tax isn't just about the income to the state. Property tax is about making sure that people are putting the property to work. If you're second mansion is costing you an extra chunk of change every year and you never visit it you'll be more likely to sell.
Additionally, property taxes are (usually) progressive. In places like NYC where they aren't that should be fixed.
Additionally, property taxes are (usually) progressive. In places like NYC where they aren't that should be fixed.
Property tax typically doesn't go to the state at all. It's a county assessment. An argument for keeping property taxes is they tend to be more stable than income or sales taxes, and since counties tend to have less float in their budget (a large pile of county spending is on the public school system) it probably works better for them.
The idea of an aggressive mill levy on someone's additional homes seems sane: use it or sell it. I just think universality of property tax isn't actually fair, just like a $200 speeding ticket isn't fair. Indexing it somehow to your worth or income is more fair.
The idea of an aggressive mill levy on someone's additional homes seems sane: use it or sell it. I just think universality of property tax isn't actually fair, just like a $200 speeding ticket isn't fair. Indexing it somehow to your worth or income is more fair.
Land value tax + principal residence deduction can solve both the economic and political problems.
By the way, property tax and land value tax are different. Land value tax is superior than the other.
By the way, property tax and land value tax are different. Land value tax is superior than the other.
In what way are property taxes progressive? It seems to me that they are inherently a regressive tax (with respect to income on a cohort basis).
(I'm not arguing that they or any other tax ought to be progressive; I'm just not aware of any place where they are progressive on an income-adjusted basis [whether directly or indirectly])
(I'm not arguing that they or any other tax ought to be progressive; I'm just not aware of any place where they are progressive on an income-adjusted basis [whether directly or indirectly])
I've got three words: land value tax
To mitigate the political frictions, LVT should probably be bundled with principal residence deduction(or exemption).
Yeah, there's a lot of devil in the details as far as determining the actual formula as a function land value. I typically imagine there are ways to align an LVT along a progressive scale, such that the little old lady who owns nothing but her own small lot isn't burdened by the tax while generously backed speculators buying up all waterfront property in sight are.
Jesus, that article took forever to describe the problem. Inverted pyramid guys, come on.
However, primary occupancy in the major properties under discussion here (the three along 57th plus the Time Warner center and a few others) is incredibly low, and basically speaks to high-end real estate bubble. These are high-visibility properties that people think of as good investments, whether because they can be re-sold later for similar valuations or because they're hedges against russians or chinese having to leave their own countries for a variety of reasons.
In that regard, it's totally worth noting that NYC does a much better job than most cities at permitting the construction of new luxury units that keep billionaires from pricing everyone else out of the market while extracting concessions like low- and moderate-income housing or the building of new parks. Imagine if each of the 104 billionaires who bought at 432 park ave had bought their own greenwich village townhouse instead. Supply would be as short as it is in san francisco.
That said, we can extract a lot more from builders and billionaires along the way, and we should. NYC still needs more housing -- the small proportion of rent regulated housing that accompanies these buildings remains insufficient to build the quantity of housing needed to avoid pricing actual new yorkers out, and to keep offering the services the city deserves.