Navigating New York City's Pandemic-Induced Property Tax Disparity
The COVID-19 pandemic has not only disrupted our daily lives but has also exacerbated property tax disparities in New York City. According to a recent report by New York State Comptroller Thomas P. DiNapoli, property tax bills continued to rise, even as property values declined for condos, co-ops, and rental apartments during the pandemic. This phenomenon is primarily attributed to market volatility and specific aspects of the city's property tax calculation methods.
New York City relies significantly on property taxes, which constitute approximately 45% of the city's revenue. While the city's residential real estate market has demonstrated resilience throughout the pandemic, this newfound vitality has brought forth a concerning consequence: an exacerbation of property tax disparities.
To comprehend the root of this issue, it's essential to understand how property taxes work in the city. New York City classifies properties into various categories, each with its distinct tax rates. Notably, co-ops and condos are assessed based on the value of similar apartments, which includes rent-stabilized units or those receiving tax exemptions, rather than market values driven by sales prices. Moreover, property tax caps, varying by property type, restrict market value increases, thereby preventing a decrease in property value from translating into a lower tax bill.
To illustrate, during the Great Recession, median market values for family homes decreased by 14.3%, yet the median tax bill surged by an astonishing 32.5%. Similarly, the pandemic witnessed a 2.7% decline in the median market value for multifamily properties, but tax bills rose by 5.8% from fiscal years 2021 to 2023. Rental properties faced a 9.6% tax bill increase during the same period, despite a mere 0.3% market value decline.
The report further reveals that these disparities have only grown more pronounced over the years, from fiscal years 2007 to 2024. The median tax bill for the city's most expensive family homes skyrocketed by 131%, compared to a 149% increase for the least expensive homes. Even renters, who do not directly pay property taxes, felt the impact as property taxes, which represent a substantial cost for building owners, were often passed down to tenants. During the pandemic, rental properties in the top 20th percentile experienced a 2% market value decline, coupled with a 2.1% increase in tax bills, while the bottom 20th percentile saw a 1.7% market value increase and an 11% surge in tax bills.
The pandemic resulted in an 11% increase in residential property values in New York City since fiscal year 2021, except for Manhattan, which houses some of the city's most expensive real estate. Market value surges were predominantly concentrated in the outer boroughs and working-to-middle-class neighborhoods.
To address these pressing issues, Comptroller DiNapoli recommends that city and state leaders continue their efforts to rectify property tax disparities, considering measures such as:
Economic Disruption Response: Accounting for how residential property taxes respond to economic disruptions to mitigate the worsening of existing disparities.
Property Tax Reform: Revisiting recommendations from the Advisory Commission on Property Tax Reform to reform the current tax system while maintaining total tax collections at an equitable level.
Affordable Housing Promotion: Exploring tax incentives to incentivize the construction and renovation of affordable housing units, which is crucial in the face of the city's shortage of affordable housing.
The COVID-19 pandemic has laid bare the deep-seated property tax disparities in New York City, which have continued to worsen over time. Addressing these disparities through thoughtful reforms and policies is essential to ensuring that the city remains accessible to working- and middle-class families while fostering a fair and equitable property tax system.