MGM: KZSU Stanford, 90.1 FM. I'm Mark Mollineaux. This is the Henry George Program, a show all about land, policy, and politics. Today on the program, we have a spotlight on a city we've yet to cover, a very big one, very notable one, New York City; located in the State of New York. We have on a very well informed guest to go into an excruciating deep dive into the complicated world of property taxes in New York, talk about the history that got us here and the reforms that are looking at making some changes, as well as a spotlight on the rest of the greater world of New York City housing issues. One final before we get into it. This was recorded late last year and delayed for various technical reasons. So when we're referring to this year, it's 2022 and not 2023. Please bear with that, and with no further ado, yeah, let's just get to it. So, Bobby, thanks so much for being here. Bobby: Ho ho ho. Happy to be here. Thank you. MGM: Yeah. So I met you for the first time this summer. I was in New York City for the first time in a while. Congrats for being in the only real city in the United States. And we were meeting up with some other housing folks based in New York City, and the two of us, for whatever reason, start talking about property taxes in New York City for like, a couple of hours. And there's a lot it's fascinating, and you seem to really be interested, so I feel like it would be good to bring you back in and talk about some more. Bobby: Yeah, right on. Happy to be here. I've actually never participated in any property tax related political advocacy here in New York. But, yeah, I really did just start reading about it one day and it was intriguing to me. But I am involved in some housing advocacy, mostly through Open New York, and I'm also an urban planning student at Hunter College, part of the City University of New York. I've done a little bit of research on property taxes in an academic setting, but yeah, that was a good conversation. I had a great time. We were in Bushwick. You remember we were in Bushwick, right? MGM: Yeah, absolutely. Drinking Miller High Lives in Bushwick. It's the real life. But yeah, I guess the thing about it, you sent me a lot of information, and there is no shortage of information you can read about property tax in New York, but the more you read there is just so, like, it gets more and more and more complicated. There's like hours and hours of videos of Equalization Board people talking about it; but I think the more you realize, you can get lost in the weeds of New York City property taxes. And my conclusion is that's the point, it's supposed to just overwhelm you with all this kind of nonsense. And the real point in the end is like, what's the impact? If you're going to specify in the end what is the main impact of the New York City property tax regime? Bobby: Yeah, I can discuss some of the consequences. There's a few primary consequences. One is that the property tax system is highly inequitable in that owners of high value properties, residential properties, tend to pay the lowest effective tax rates. People tend to be higher income, they tend to be wealthier. Owners of lower value properties who tend to be lower income and non white tend to pay the highest effective tax rates in the city. That's one consequence is inequities between residential property owners and then there are inequities between different property tax classes. So there's four property tax classes in New York. Class one is a residential category for properties that contain one to three units. There's class two, which is another residential category for buildings that contain four or more units. That includes both multifamily rental and multifamily owner occupied housing. So condominiums, but also cooperative. And there's class three, which is utilities. And don't ask me to elaborate on class three because I don't really know much about that. MGM: Yeah, it doesn't matter that much. Bobby: And then class four is commercial properties. New York City's Department of Finance publishes statutory nominal tax rates for all these categories. But really those official tax rates are completely meaningless because the Department of Finance uses fundamentally different assessment methods for determining the assessed value. So for example, class one, those properties that can name one to three residential units, the Department of Finance uses a sales based methodology to arrive at the market value. And then they apply an assessment ratio of 6% to arrive at the assessed value. And from there, there may be exemptions that are applied to the assessed value to reduce the taxable value and then abatements actually reduce the taxes. And then in class two, class two uses an income capitalization method, as does class three and class four. And so rental buildings in class two submit what's called a Real Property Income and Expense statement, which is used to determine the net operating income for these buildings. And then the Department of Finance applies a capitalization rate to the net operating income to arrive at a market value. And then the Department of Finance applies a 45% assessment ratio to arrive at the assessed value. And you'll note that class two properties includes condos, co-ops and rental buildings. But it's only the rental buildings that are submitting these RPIEs, the real Property Income and expense statements. But there's a state law that forces the Department of Finance to assess condos and co-ops if they were income generating rental buildings. And so what the Department of Finance does is they create these hypothetical property values for condos and co ops by identifying what they consider to be comparable rental buildings. MGM: Yeah, in general, like owners equivalent rent or something is like that's a legitimate approach. It just seems they do a really bad job of it in the end. Bobby: They do a very bad job of it. Yeah. MGM: In the end. The general takeaway I see it's like it's on the order of, like 0.6% to 0.8% is condos versus rental buildings. So somewhere on the verge of like two thirds or three quarters, it's just a bigger burden for rental units. Bobby: Exactly. Yeah. And the consequence of that is that it disincentivizes rental housing production in the city, which constrains the city's overall housing supply and contributes to the affordability crisis here. MGM: Yeah. Really big picture, the process. You see this in a lot of places, a whole, like, fractional assessment, which is just instead of saying you assess it, then you put our tax rate, instead you say you assess it, then you take a fraction of it, and then you do a tax rate on that. And what can vary? Question one is, like, why would anyone ever do that? Because you're just multiplying two numbers. Why not just have one number? Obfuscation may be the point, but in some of the documents you're sending I was just talking about you before we went on mic, but I was looking at the history of it, and basically up until the 70s, all of New York State said, we don't do fractional assessment. Here. You take the market assessment, end of story. You take a tax rate. But in practice, up through the 70s, everyone was just de facto doing fractional assessments, so they were just thumbing their nose at state law. And I think very broadly, what is the reason for that? It's because landowners homeowners, it's very convenient if you kind of grease the wheels and give them a nice, basically discount across the board. It's very popular for tax assessors to have their home voters get a nice break. And what's really fascinating is there's this weirdo, this guy who was an Upper West Side dude, but he and his wife owned a place over in Fire Island, and even though he started a lawsuit to say, I'm being undertaxed, and he said, "My interest is mainly curious, I don't expect the layman to understand my motivations." But he started suing the town of Islip for undertaxing his resident because, like, residents there because they were not doing full market assessment. And in the end, I mean, just to sum up the story, the Appeals Court of New York agreed with him, and they said, okay, yeah, you actually have to follow the state laws. And this became a massive panic because this would mean homeowners, especially in New York City, would suddenly get this incredibly high increase in the taxes they pay. So New York City‒ or the entire state, but New York City‒ was driving it. They fixed the bug by saying, no, we actually will have fractional assessments, and it's going to have all these different classes, and really, in the end, we're going to make it preferential to homeowners. So they fix that problem. Bobby: Yeah, totally. The property tax class system came out of that lawsuit in the city of New York, but also assessed value growth caps came out of that as well, which applies to those Class One properties. So those small residential, those small residential properties, one to three units, assessed value, the assessed value of those properties can't increase more than 6% annually or can't increase more than 20% over a five year period. That's why you see so much inequity amongst homeowners in that category. Why homeowners in Park Slope, one of the wealthiest neighborhoods in the city, or West Village, also one of the wealthiest neighborhoods in the city, pay an effective tax rate of 0.1%, 0.2%, whereas homeowners in South Shore, Staten Island, or in the South Bronx, eastern Queens maybe pay upwards of 1% ten times the effective tax rate. MGM: Yeah, in general, I think that's kind of everyone knows about Prop 13 in California, but the fact that New York City has its own effective Prop 13, I mean, the 20% over five years, if you uncompound that, that's 3.7% a year, which is not as bad as the 2% out here. But in time, I'm pretty sure that the real estate values in New York City are going up much more than 4% a year. So if that continues to hold, that's just going to make this same kind of aristocracy of longtime landowners. And yeah, as you were saying earlier, there's general inequities over who is paying what. And a big thing is where; you're sending some documents that were showing the distribution of effective tax rates. And basically it's a similar story to what you see in a lot of different cities, which is just marginal land, kind of lower income people living out in the sticks relatively are paying higher rates, and people in the city core are paying lower rates. So Manhattan has a lot less than you have out in Queens and everywhere. So that's not ideal, but it seems to be exactly the point. Bobby: Yeah, absolutely. I have a question about Prop 13. Upon ownership changes in California, do assessed values reset to market values? MGM: Okay, so, yeah, that's actually a great follow up question for you. So, yeah, in California, they reset every time it's sold. Also, every time, if you do a major renovation, at least the improvements, they'll reassess that. If it's a major renovation as opposed to Measure 5 in Oregon, never resets, even if it passes hands. So is New York City's. Thing about the cap is that based on the property or the owner? yeah. Bobby: So it's based on the property, it does not reset. MGM: Interesting. Bobby: However, those assessed value growth caps, 6% annual cap or the 20% every five years, that only applies to increases in land values. So improvements, renovations, and so on are not capped by the assessed value growth caps. MGM: Of course it's not. Yeah, in general, a lot of people agitating there are property tax abatements for improvements and everything, but it seems like it's done in kind of goofy ways. It doesn't seem like it really and it expired earlier this year, but more or less it's part of a big scheme of it's almost sort of like a density bonus where they're trying to get inclusionary zoning benefits for subsidized affordable housing by allowing a property tax abatement for 35 years. Just across the board. They have different rules on whether it's below 92nd Street in Manhattan or out in the area. And it seems like more or less people are complaining that people are doing, I guess I would call it geographic arbitrage of you find out the places that the subsidized rate, which is 130% AMI, if the AMI is broader, which it sounds like it kind of is more or less, it's not very localized. So if you go out to the sticks, you can basically have the, quote unquote, affordable housing, which is the same raised in market units you'd buy. So everyone's just kind of using this provision to sense everyone to basically build out sprawl instead of doing kind of building in the core of the city. So it seems just really badly designed across the board. Bobby: Yeah, I think that's correct. Yeah, that's your current 421A tax abatement, which was initially created in the 1970s, it did not stipulate affordability requirements. It was introduced as a way to encourage housing growth amidst New York City's economic decline and fiscal crisis in the 1970s. And since then, I think maybe not until the 90s or the 2000s, those affordability requirements were included. But yeah, you're right. Except in Manhattan core, most of the inclusionary units in those enforcement A buildings are 130% AMI. And oftentimes the rents in those income restricted units are not that much lower than in market rate units. And right now, there's a lot of chatter about how many vacant rent stabilized units there are in New York City. There's a lot of conflicting reporting on this, but I've seen anywhere from like 40,000 to 90,000 vacant rent stabilized units in the city. And I think a lot of those are actually 421A income restricted units because all 421A units have to be registered with the state as rent stabilized units, even though they're built after 1974. Most rent stabilized units are rent stabilized in New York because they're built before 1974 and because they are in buildings with six or more rental units. But 421A units within 421A buildings are also subject to rent stabilization. MGM: Just the ones, like, all of them, or just the ones that basically are the 20% or whatever? yeah. Bobby: So I think in in the recent iteration of 421A, which was which was renewed under Cuomo I can't remember when 2016 or 2017, both the income restricted and the non income restricted units are subject to rent stabilization. MGM: Interesting. Bobby: So I think a lot of these empty, rent stabilized units that these media outlets are reporting on are actually in these 421 A buildings and are particularly the income restricted units, because developers or the new owners of those buildings are having a hard time filling those 130% AMI units because the rents are probably about the same as the market rate units. But it's a real pain in the ass to get an inclusionary unit in New York. You have to go through the lottery. MGM: And there's steps, big queues. You're mentioning it's a disincentive all across the board on building rentals as opposed to condos and co ops. But do rentals still get built? Because in a place like Vancouver, which is famous for the fact they build like 99%, condos, like rentals just don't get built there. But even with this, do new rentals get built? Bobby: Yeah. Yes. And since 421A lapsed in June of this year, rental housing starts have declined substantially. I was trying to get the exact data on that, but I couldn't really find it. It's hard to find, but it is my understanding that rental housing production starts have declined a lot since 421A lapsed. And there are now sites in the city that are just not being developed. Like in many cases, sites that would have been developed as multifamily, privately financed rental housing through 421A could alternatively be constructed, could be developed as condominiums or as 100% affordable housing because there are different tax exemptions, property exemptions that exist for 100% affordable housing that are still in effect. But even when 421A was in effect, the city was only netting about 15,000 to 20,000 new housing units annually. And not all those are rentals, but the majority were definitely rentals. And I think pretty much every multifamily rental building with maybe more than 10, 20 units used 421A before it lapsed. Yeah. So it certainly had an effect on rental housing production figures. It's not the only factor at play. I mean, zoning is obviously a key factor. New York City has pretty restrictive zoning, given how high demand of a city it is. There's funky things with building code regulations here that are particularly restrictive and also constrain housing development, but we don't need to get into the weeds in that. MGM: Yeah, I think it is interesting, though, what is the point of these abatements? And you'd say that there's a precedent. I think back in the 1910s, they called the Al Smith Act‒ I think it was a statewide thing‒ of just basically it was as opposed to all these kind of weird, kind of very fussy details. I believe it was just kind of across the board. I think it said for ten years, no taxes on improvements, which I think they built a lot more housing. And at that time, the idea is like, we need to build a lot more housing in New York City, et cetera. And the question is, is the general idea we need to build a lot more housing in New York City? Because I feel like probably for a lot of the discourse, the idea is like, no we don't. But I guess the answer is, do they? And where I'm very far away, I know about the fights over, like, Soho and all this, but the idea like New York, a lot of people would say, oh, New York is already dense, it's built out, but it seems like that's not a rule across the board. Bobby: Yeah, certainly there are low density neighborhoods within New York, and 15% of New York City's land mass is still zoned exclusively for single family homes. And then a larger percentage is zoned exclusively for pretty low density missing middle housing, especially if you look the metro. MGM: Area because I mean, the city itself. But really the big chunk of Long Island really is New York City and New Jersey. Connecticut, my dad's side of the family is from Hempstead, and all that. Bobby: Right. MGM: There's no reason that shouldn't be part of New York City. Bobby: Oh, yeah, ridiculous. Yeah. Nassau county and Suffolk County and Long Island. I think those counties do consistently report some of the lowest housing production figures in the whole country. Jersey is a lot better. Westchester County is to some extent as well, but Nassau and Suffolk County produce virtually no housing, much less per capita even than the city of New York in general. MGM: I think we're seeing a lot of as far as trying to get different jurisdictions to do their fair share. Like, California has a lot of state intervention. Is there any chance of New York City pushing towards trying to I mean, I could dream of just annexing all of Long Island in New York City, but at least trying to use Albany to make it do a better job. Is that in the cards or does that seem plausible? Bobby: Yeah, it seems like a political possibility in this upcoming legislative session. So the governor, the current governor, Kathy Hochul, who replaced Andrew Cuomo after he resigned, he did propose some statewide zoning reforms during the last fiscal year's, budget for the state. But because of political opposition on Long Island, all of those zoning reform provisions were removed from the budget. And they weren't particularly radical proposals. I mean, one was just an adu preemption law that would have applied statewide, permitted one, maybe up to two adu's per residential lot in certain cases. And then there was what was called a transit oriented development tod zoning reform that would have permitted, it would have compelled municipalities that are serviced by Long Island Railroad and Metro North Railroad towns within Suffolk, Norfolk, Westchester Counties, and I guess some other upstate counties like Putnam and Duchess County. MGM: What kind of radius from stations? Bobby: Yeah, I think it was a half mile. MGM: Okay. Bobby: Either a quarter mile or a half mile. And those municipalities would have been compelled to zone for up to 25 dwelling units per acre surrounding those commuter rail stations okay. From the budget proposal as well, due to political opposition. MGM: Yeah, well, it sounds like it's starting to like yeah, I mean, a lot of that resembles the kind of reforms in California. So it sounds like kind of people are kind of reaching towards the same stuff. Even if that got scheduled, it's in the air, so that's interesting. Bobby: Yeah, for sure. There was a proposal to establish, like, a New York equivalent of 40B, which 40B is in Massachusetts. That is essentially a builder's remedy legislation. MGM: Nice. Bobby: For towns that have not met their affordable housing requirements, it would set affordable housing production targets for each municipality in the state. And for municipalities that don't hit those targets, their zoning powers will be stripped. So kind of similar to what's happening in Santa Monica and Beverly Hills and I guess other cities in Southern California right now. MGM: Yeah. What's interesting to me is just like, New York City is New York City, and it's so weird to me that so much of the politics seem like just the kind of dumb stuff you'd see in a small town of just like, oh, yeah, the homeowners rule the roost. It's like when I see stuff like, oh, yeah, homeowners control, New York City tax policy and stuff like, I mean, it's an unrelated issue nominally, but like, congestion taxes for cars. No one but freaks would drive a car in Manhattan, but they can't do congestion taxes because these weird freaks just still act like it's an average suburb or something. And it's so strange to me that a place where it's like, yeah, renters have a heavy majority of the population, and the built form is obviously not, like some kind of dumb suburb, but you still have there isn't the political power to say, let's stop bending over backwards to basically serve these petite and large landowners in this area. Bobby: Yeah, 70% of New Yorkers live in rental households. Yeah, you're totally right. Homeowners dominate tax policy and certainly transportation policy as well. MGM: Yeah, just in general, I guess the very broad what is the discourse? How is it addressed there? Because it feels like from afar, it seems like most places, New York City is no exception. When there is, like, you're not basically developing the core or the periphery. If it's kind of stagnant, it's just basically you get this pressure cooker and things get more and more expensive. And how is it relieved? It's relieved through paths of gentrification, you start to spread out like, oh, yeah, we can kind of displace without really changing very much. Let's snake out through Brooklyn, probably up through Queens next and everything. And that's the whole path of everything becoming unaffordable. And I suppose it seems pretty obvious. It's like you need to do something to relieve this pressure, but it's very easy to kind of just say, "oh, nothing can be done. We're already built out; any sort of change is going to harm people", but it just feels like the status quo is pretty nasty and I don't know, does the status quo seem like it's imperiled or is it just still this whole thing of like, the only thing everyone can agree on is not to do anything? Bobby: Yeah, I would say that there's more hope at the level of at the state government level than the municipal level in New York in terms of land use and zoning reform. Yeah, I don't have a lot of hope. A lot of people I know are more optimistic about municipal zoning reforms than I am. I really think that the state needs to intervene and just preempt local zoning in a lot of cases. MGM: But is it right to say that the battleground is if you don't do anything, it's gentrifying up through Queens? Bobby: Yeah, there are already neighborhoods in Queens that are gentrifying. I live in Ridgewood, which is on the border with Bushwick, and Ridgewood is certainly a rapidly gentrifying neighborhood. And Astoria as well, which is across the East River from the Upper East Side and Sunnyside, Long Island City, although Long Island City is an interesting case because it was a formerly industrial neighborhood that was rezoned in the early 2000s to high density residential use. It's a high income neighborhood. It's a higher income neighborhood now than it used to be, but no one used to live there prior to the 2000s, really. But a lot of the housing production in Long Island City has probably absorbed demand that would have otherwise manifested in displacement and gentrification in neighborhoods like Astoria, Sunnyside, Woodside. And that has long been the growth in zoning policies that the city of New York has pursued. These really tightly constrained neighborhood rezonings, especially in formerly industrial neighborhoods where there's less NIMBYism to contend with because there are simply fewer residents. That was kind of similar with downtown Brooklyn and the Williamsburg waterfront to other neighborhoods that have shouldered a lot of housing development and are surrounded by neighborhoods, some very wealthy neighborhoods that haven't experienced any housing production in decades at this point. MGM: Yeah, I don't want to kind of get in the weeds too much on just like zoning, zoning, zoning; insofar as just very broadly. I mean, that's just one aspect. I mean, it's a big aspect. How do you shape the city? What is the general commuting flows look like? How can you expand transit? I mean, that's what's so sad, too. They aren't building new subways like they used to, but on top of it yeah, I guess the question too is just kind of like, what does it look like for controlling the resources of the city and everything? I hear a lot. I mean, I realize it's kind of out of the scope of this about, like, NYCHA, the public housing becoming disinvested, selling off assets and resources. There isn't a ton of basically publicly controlled land, but that's the whole thing. Just very broadly, new York City is just like, multiple trillions of dollars of land value in the city. So if the city just used that for public good, there's a lot to go around, but instead it tends to flow to private hands. And is there any real hope of either through property tax reform to tap into that or more direct public ownership or whatever? Because you sent, like, there's, like a document advisory report about, you know, simplifying, modernizing New York City's property tax system. And, like, just in general, it seems like they said, okay, let's try to have more horizontal equity. But a lot of it is like, let's make sure we have homeowners have ability to pay, so let's have more homeowner relief. I don't know. It doesn't seem like this is even in the right direction of the reform they need. Bobby: Yeah. And that was also a revenue neutral proposal. MGM: Yeah. Bobby: It would change how the assessments are performed. It would abolish the fractional assessments and abolish the growth cap, which I would certainly support, but then it would in turn reduce the property tax rates that are applied to the market values of those properties. And that reform also wouldn't relieve rental housing from its disproportionate property tax burden as well. I still support that reform, I think, even though I agree that if it's. MGM: A step in the right direction, I can agree. It just seems a little bit maybe. Bobby: Underwhelming, but certainly it's underwhelming. Yeah. MGM: Is this likely to move ahead or what's the politics look like? Bobby: I don't think it's likely to move ahead. I'm a pretty pessimistic person in this regard, at least not for now. It's not going to move ahead. It requires state authorization. New York City doesn't really have a lot of municipal control over its tax policies. New York City can increase or decrease its nominal property tax rates, but the municipality can't reform the actual property tax structure. They can't change the assessment practices without state authorization. It requires state enabling legislation. And as far as I can tell, there's no real appetite amongst state politicians to enable those kinds of reforms. MGM: Well, how often does stuff like because back in that original Hellerstein case, back in the 70s, he was complaining, like, yeah, they increased the tax rate, but they never reassess it. Like he said, for 25 years, they didn't reassess it. He was being assessed for $13,000, and then only a quarter of that was a fraction. But stuff is selling for $45,000 by that point. But just in general, throughout New York City, how often does reassessment happen? Bobby: I'm not sure. The Department of Finance, like the reports that the Department of Finance publishes, suggest that reassessments happen annually, but yeah, I'm not entirely sure. I don't know a lot about how the Department of Finance operates, to be quite honest. All of New York City governance tends to be crowded in many layers of mystery and secrecy. But. I think the Department of Finance is maybe the biggest culprit in that regard. MGM: Yeah, I have to work there to. Bobby: Understand how that agency functions and how their assessment practices function. MGM: Yeah, all these documents are kind of saying it's like, oh, yeah, they have all these processes that are not public. It's a weird dark magic. In the end, to restate the point, as I said, the valuation: effective tax rate on condos and rentals was 0.58% and 0.82%. In California, everyone kind of rises to the top of the Prop 13 limit, which is 1%. This is well below 1%, which is that's pretty pathetic, and just especially when you're talking about the value you can get in New York City that they're leaving all this money on the table. Bobby: Yeah, absolutely. I think there's about $1.7 trillion worth of land value in Manhattan alone, so a few trillion dollars worth of land value in the entire city? Yeah, I think yeah. New York City certainly doesn't utilize property taxation well as a revenue source. Property taxes account for about 30% of New York City's municipal revenues, which is actually a lower percentage than a lot of other municipalities in the US. And there's a few reasons for that. Part of that is New York City just imposes a pretty diverse array of taxes that other municipalities don't impose. Like there's a municipal sales tax in New York, there's also municipal income tax in New York. And then part of it also is that a lot of federal funding flows through the city government. The city administers a lot of federally funded social programs that are typically administered by state governments. But yeah, in the end, property taxes only account for 30% of the city's municipal revenues, which is about $30 billion, about $100 billion expense budget in New York City currently. MGM: It's a lot easier to pass some sort of municipal sales tax and I guess try to claw it back from the property owners. Bobby: Yeah. And there are other real estate related taxes. Like there's a real estate transfer tax called Real Property Transfer Tax, and there's a mortgage recording tax, but they probably yield a couple of hundred million dollars, maybe close to a billion dollars between the two of them annually. But, yeah, you're definitely right. The city does not utilize property taxation efficiently. And you're also right that the reforms that were outlined in that document that I sent you would not actually yield any new revenue for the city. Yeah, I mean, it would make it would make property taxation slightly more equitable, which is laudable, of course. MGM: Yeah, there's one really dramatic chart in one of these documents you sent, which actually I don't know how to square it with some of the other information, but it's 50 largest cities, so the 50 largest cities in the US. Probably metros. I'm actually not sure. I mean, maybe it's cities looking at cities by apartment property taxes. New York City has the second highest of property taxes for apartments, which is 4% effective tax rate, which I don't know how that squares with the other place saying it was 0.82% effective tax rate on rentals in class two, but then it's second in apartments, but it is 44th in Homestead, property taxes 0.6%. Bobby: Right. MGM: So, I mean, it's just yeah, that's that's that's pretty nuts. And you can kind of, you know, you can just see across the board the same basic geographic stuff. To say another point, that there is no split rate taxes. So more or less the fact that it is applied on even cheap houses on the periphery, they're paying just a large amount. They're really squeezing folks on the edge just to not touch stuff. In Manhattan? Bobby: Yeah, in Manhattan. And at this point, a lot of core North Brooklyn neighborhoods as well. Those are actually‒ Park Slope, Cobble Hill, Clinton Hill neighborhoods kind of adjacent or in close proximity to downtown Brooklyn. It's homeowners in those neighborhoods that I think, on average, pay the lowest effective tax rates in the city. Yeah. Actually, DeBlasio, the former mayor, he lives in Parks Slope, and he talked about paying like $5,000 in annual property taxes on a $5, $6 million brownstone when he was mayor. MGM: Yeah, I think it says, like, Williamsburg. The district is Williamsburg and Bed Stuy and stuff down here in Brooklyn, that is the lowest. That's the lowest for homeowner percentage. But it's pretty basically just the richer areas pay the least is this way. This one map looks actually, speaking of, like, Park Slope and this whole area, that's like, one thing I never really kind of understood about. Co-ops are kind of a predominantly New York thing as far as you don't see them anywhere else. Was that because of some sort of advantage financially, or is this just kind of a cultural thing that basically it can't get started elsewhere, even though nominally it isn't exploding in New York tax or anything, but it's just, oh, this is the way we do it here. Do you know much about co-ops and why they tend to be it's a great question. Bobby: I don't really know a lot about co-ops in the history of co-ops at this point. It seems pretty cultural. I don't know if new co-ops are really constructed anymore. I think it's mostly condominiums in terms of multifamily owner occupied housing that is constructed. I don't know. It's a good question. MGM: Yeah, it seems like a lot of it had to do with kind of like buying out disinvested areas while New York City was kind of emptying out in the kind of fiscal crisis days. Seems to be at least some of it, but it preexisted. I don't know. I try to find some answers, but I really couldn't. Bobby: Yeah, it certainly is true that when a lot of properties, residential properties, fell into city ownership, were in-rem properties starting in the 1970s and through the lot of those properties did convert to cooperative ownership. I'm not sure if that phenomena accounts for I'm not sure what share of the overall amount of cooperative units that phenomena accounts for. And a lot of those co ops are subject to affordability requirements and receive separate different tax exemptions from the city government. And I just know that partly through my work, I work for an affordable housing municipal agency in New York. Otherwise, I don't know a lot about the history of co ops. They are distinctly New York phenomenon, though it feels great. I mean, there's like, kind of hippy dippy co ops in Santa Cruz or in Santa Barbara or whatever, but entirely different legal structure. MGM: Yeah, you get, like, stuff like Tenants-In-Common in places in California, San Francisco, but that seems to be more or less like kind of skirting around condo conversion rules. So they would be a condo, except they can't be. So it's all sorts of weird stuff. But as far as we were talking earlier about, they were using the tax abatements as a way to generate affordable housing to, at least in theory, remedy the long queues and the lack of affordable housing. As far as other approaches, do they have other tax or just like in general? What's your basic take on how it is doing as far as building enough subsidized units and what could it do to do more? Bobby: Well, I think 421A will probably be renewed under a different name. 421A is very popular, or is very unpopular on the political left in New York, and that's why it lapsed, because it just didn't secure enough support in the legislature. There's a lot of more left-leaning politicians have won office in New York City, and they didn't even vote on it this year. They just let it lap. So I think 421A will be reformed and renewed under a new name with stricter affordability requirements. What I've heard is that it'll probably be renewed with the 25% overall affordability requirements. 10% of the units will be restricted at 40% AMI, another 10% at 60% AMI, and then 5% at 80% AMI versus the 30% at 130% AMI, which was the case under Cuomo's second term, like 2016 to 2021. I don't really see 421A as a good mechanism for producing subsidized housing. That's not really its utility, in my opinion. Its utility, in my opinion, is to really act as a Band Aid to inefficiencies of New York City's property tax system and to allow rental housing buildings to actually pencil. Whereas currently the property tax burden is so high on rental housing that new construction of rental housing just doesn't pencil out. Sites that would have been developed as rental housing are being developed as condominiums instead, which, on the net, I think is worse for affordability. But yeah, ideally all of these tax statements and exemptions are really obnoxious they're all bandaids creates a very Byzantine system that's impossible to navigate. And ideally, we would just enact deeper fundamental reforms to the property tax system and either eliminate property tax classes entirely or at least create tax parity between those property tax classes along with abolishing the assessed value growth caps and all these other mechanisms that generate inequalities. MGM: Yeah, it does seem like everyone the whole I guess the fight over 421A being good or bad has a lot to do. Are we getting enough affordability out of new development or do we need to restructure it? But the weird kind of implicit assumption in that is new development must pay a share. But longtime real estate owners, you're not clawing it back from them. It feels like they're just in the shadows saying it's like, oh yeah, don't look back here. We're benefiting from all this stuff. But as long as you don't see a crane or something, people kind of ignore the fact that there's just tremendous wealth in real estate that's just more invisible. Bobby: Yeah, absolutely. And that makes reforming the property tax regime in a fundamental manner really difficult because developers don't if developers can get their 421A tax exemption, that's all they really need. They don't really care about enacting more fundamental long term reforms. Right. They're going to sell those buildings before that exemption expires no matter what. Pretty much. And because the only other real constituents here are wealthy homeowners on the one hand and existing landlords. Right. Especially rent stabilized landlords. The only politicians that are really talking about property tax reform are those who represent homeowners in places like Staten Island or Eastern Queens. More conservative NIMBY homeowners. Those are the actually, the only Republican districts really in the city are in Staten Island and parts of Eastern Queens. Well, my council member is a Democrat, but he used to be a Republican. A lot of the left leaning state politicians who've recently been elected to office, they don't have any incentive to support fundamentally reform New York City's property taxes because the only constituents in their districts who care about property taxes are landlords. There's not many homeowners in their districts. There's at least not many homeowners in the districts who are harmed by the current arrangements. And yeah, for obvious reasons, you're not going to find that many left-leaning politicians who are sympathetic to landlord concerns, especially the concerns of rent stabilized landlords. MGM: Yeah, I suppose. Are you saying if you're in a place where there's vanishingly few normal homeowners, do they not listen to them? There's still people who are landowners in lower Manhattan even, but they're clearly very rich. But do they control their electorate representatives? Bobby: Yeah, those wealthy landowners wield a lot of political clout and they actively benefit from New York City property taxes. With the exception of a lot of commercial property owners, which is mostly composed of office space in New York, offices do actually pay really high effective tax rates, especially relative to owner occupied residences. And this is going to become a budgetary crisis whether or not politicians want to deal with it right now or not. Because the office occupancy rate is still below 50%, 46% I saw today, property values likely will fall for commercial buildings, and property tax collections from commercial buildings will probably start to fall over the next few years. And right now, between 40% to 50% of New York City's total property tax revenue is sourced from commercial buildings, mostly offices. MGM: Yeah, it's always much, much easier. And that's a big question. You see this in so many places. Are they going to reassess it down? Do they have the ability or inclination to reassess it down if it really is dropping in real terms as these leases become less attractive? Or are they going to keep it up? And then you might just see a lot of just de facto vacancies of people just don't want to own it if they're being overtaxed on it. I think it's like people want to keep their heads in the sand and say, oh, no, commercial will continue to be this golden goose, but I think that they're in the middle of a rude awakening one way or the other. Yeah, I agree, but I mean, it seems like a big, like the biggest problem in so many ways. It seems like the landless there's like a certain, like certain lack of class consciousness of like they're getting screwed and they don't seem to be able to get the political muscle to fight back against fairly small amount of very rich landowners and everything. But don't know. I don't know if like there's if there's any way they could really change. I'd say like in some, like the very abstract, you know, larger ideas of development patterns throughout the general metro area. No one's going to get worked up about that. And property tax are boring, so I don't know, it sounds like you're pretty much a pessimist in a lot of things. But do you think it's going to continue to be the case even when you do have such high renters as you do there? Bobby: Yeah, it's a good question. I'm not sure. I think that the tax inequities between the property tax classes, particularly between class one the small owners and class two multifamily owners, I don't think we're going to see fundamental reforms between those tax classes anytime soon. I think there is some political momentum to reform the assessment practices within the class One properties, like Abolishing, those assessed value growth caps. I think that's possible. I don't know when it will happen. I think that for now we're going to see a new iteration of 421A. It'll be called something different, 485W or something that will have stricter affordability requirements, which will appease some affordable housing advocates, some kind of the left NIMBY folks to an extent. I mean, they'll probably still oppose it, but it'll attenuate some of that opposition and hopefully in tandem with reforms and renewals to 421A, there will also be some broad based zoning and land use reforms as opposed to just site specific and neighborhood only rezonings, ideally at the state level. I think that is in pragmatic terms the most likely path forward towards facilitating greater affordability in New York for the time being. For the time being. MGM: Do you think I saw in one of it like they're talking about moving away, like the class two contains rentals and condos and co-ops and they're going to filter out the condos and co-ops away from rental. Do you think that's going to be reformed or do you think that's unlikely? Bobby: I would love it to be, yeah. So the proposal was to move condos and co-ops and small rental buildings rentals with ten or fewer units from class Two to class one. And so those properties would be assessed using a sales based methodology instead of the current income capitalization methodology, the latter of which is severely undervaluing a lot of high value condos and co ops. I don't know. I would love to see that, but there's a lot of wealthy condo and co op owners who wield a lot of political clout in New York entrenched liberal assembly and Senate districts in Manhattan, it seems like. MGM: I'd really like the one part of that of less than ten unit rentals being carved out from the larger rentals. I find that to be so much at the core of so much bad politics is when the mom and pops speak for the big landlords. Also, because there's a lot of white caping or white knighting for it's, like, oh, everyone is let's look at the smallest landlords. And if you kind of have this one class of stuff, it's like, okay, these are real landlords, but yeah, let's stop pretending like they're like babies or something. Bobby: Yeah, absolutely. As I mentioned before, rent stabilization doesn't apply to landlords who own or buildings that contain fewer than six units. Right. So there's already this huge exemption from a very significant landlord tenant law in New York City for thousands of small landlords. MGM: And I guess before we wrap up here, I feel like I'm pretty ignorant about this stuff. I mean, I've not spent a whole lot of time in New York, but I remember we were talking too about the fact that just so much can't be done because historical protection and just a lot of the city is kind of frozen in amber. How big of a deal is that in the big scheme of things? Is that just something you get to live with? Or do you think there's much of like, is that a fight that's going to happen more and more of reforming this or can it be reformed? Should it be reformed? Bobby: You're referring to neighborhood historic designations. MGM: I guess I remember talking about something or other. Bobby: Yeah, totally. I live in Ridgewood, which a significant portion of this neighborhood is a designated historic district. And I'm definitely not an expert on this subject, but my understanding is that those historic districts do place pretty significant limits on redevelopment. And even during the Soho rezoning process, I thought that there were a lot of compromises made in that process to preserve historic buildings and to preserve the entire historic district within Soho. Like, most of the upzoning in that neighborhood, rezoning actually occurred on the peripheries of Soho to preserve a lot of those historic ironclad buildings in the core of the neighborhood. Yeah. I would love to see reforms to historic preservation policies, just like I would love to see reforms to building code policies. I think right now, those topics haven't really entered the policy conversation, not just amongst politicians and elected and other public officials, but even amongst housing advocates. I think the focus right now is really on zoning and land use. I think hopefully, property taxation, building codes, you, and historic preservation could be a next step after we win some zoning reforms. And tenant protections, of course, are always a major focus of housing advocates in New York, and that will remain the case. And supporting efforts to increase municipal funding for subsidized housing. 100% subsidized housing. Right. Those are issues that advocates are constantly working on. MGM: Yeah, we're talking about kind of like, the larger issues of ownership and taxation. But I don't want to put you in the spot saying, summarize the tenant protection issues briefly, but... if you had to summarize them briefly, what are the general topology of the fight there? Bobby: Yeah, so New York City has some of the strictest rent stabilization laws in the country. New York City actually still has some rent control departments, like World War II MGM: Era, kind of like crude original version, but if you find your way in one of those yeah, it's a sweet deal. Bobby: Yeah. It's very hard to do. And they now compose less than 1% of the rental housing stock in New York City, but rent stabilized units total about a million rentals in New York City. So a significant portion of the city's population lives in rent stabilized housing. And there are constantly political battles over the contours of rent stabilization. And similar to New York City municipal taxation, the municipality doesn't have policy control over rent stabilization. The state has control over that system. MGM: Oh, interesting. That's very similar to Canada. It goes up the provincial level. That's interesting. Bobby: Yeah. MGM: Honestly, I understand people hate that because you can't do people power at the local level as much. But I don't know. To me, the flip side is it does well for solidarity. You make sure that if you're doing something, it works for people everywhere. I guess if you're doing it right. Bobby: Well, it's a little bit different than, say, the rent regulations in California or Oregon that were recently passed there are not statewide rent regulations in New York state. MGM: Oh, so the state regulates it, but they have a specific geographical bound? Bobby: Exactly. MGM: That sucks! Why would you do that? Bobby: There are a few other municipalities that have rent stabilization. Nassau County, I think, has a rent stabilization, is subject to rent stabilization law that is again controlled by the state legislature. So all of the political battles regarding rent stabilization occur at the state level. The most recent battle was in 2019 when a number of pro-tenant reforms passed the state legislature that closed a lot of landlord loopholes. There were a lot of loopholes that allowed rent stabilized landlords to exit rent stabilization. If, like, rents increase to a certain threshold, there are also vacancy bonuses. So rent stabilization in New York at this point does not include any vacancy decontrol. So it's certainly unique compared to rent stabilization that happened in California. Right. Like San Francisco, Los Angeles, the San Jose rent stabilization as well. MGM: All of California is yeah, it must be decontrol. That's a state law, I think vacancy control. I'm on the record saying I think that's the theoretically correct way, but it's more difficult to do it right, but it's worth doing. Bobby: I agree. I mean, I certainly have mixed feelings about it, to say the least. And right now well, for the last few years, there's been a campaign during every state legislative session to enact what's called good cause eviction, which would be which will be a statewide regulation that would provide lease renewal protections and would stipulate rent regulations based on a percentage of the inflation rate. So I think it's 150% of the localized inflation rate or 3%, whichever is higher, and that would apply to all rentals. Statewide. Rent stabilized units in New York city would still be subject to New York's specific rent stabilization law, but all unregulated units would be subject to good cause eviction protection that has failed the legislature at least two, maybe three years in a row now. MGM: So New York city tenants don't have just cause right now? Bobby: Not in unregulated units. MGM: Okay, sure. That's that's interesting. Yeah, yeah. And so I guess yeah, that's that's a major battleground right there. But also, if you know offhand, what are the protections look like for redeveloping a building and all that, as far as anti displacement kind of interventions to make sure that it isn't like, hey, we're redeveloping all the leases are severed, and good luck, find a place. Or is there much? Bobby: Sure. It also depends whether or not you live in a rent stabilized building or if you live in an unregulated building. If you live in a rent stabilized building, there are pretty strict relocation assistance provisions that the state will enforce. A lot of landlords will try to skirt those regulations through informal buyout tenants. MGM: Sure. Bobby: But there's like, a formula and a payment schedule that landlords of rent stabilized buildings are supposed to adhere to demolish their buildings. MGM: Yeah. I kind of imagine there must be good demo protections, because if there weren't, they'd all be condos by now, so that makes sense. Bobby: Exactly. And it's hard to even without demolition, it's hard to convert a rent stabilized building to a condominium building as well. There's a lot of regulations prevent those conversions, but, yeah, rent stabilized tenants who are facing demolition could easily expect to get a good couple of hundred thousand dollars in relocation assistance. And landlords, I think landlords can be compelled to identify alternative housing for comparable units to rehouse those tenants. MGM: Yeah, I suppose in the big scheme, that's a big question of, like, okay, so if you have these kind of restrictions, does that like, what do you have flexibility? You need to actually build new housing. And either of the thing is you need to have kind of good but flexible ways to kind of treat tenants well, but also rebuild. Or maybe you write that off and say, okay, we're only doing owner-occupied units, which is like, well, I mean, it's certainly an approach, but you really have to go full out to kind of say, okay, we're redeveloping all the owner occupied areas, but I don't know if that's happening. Bobby: Right. Well, I think there's a lot of potential for housing production growth in neighborhoods that are predominantly owner occupied. MGM: That's a low hanging fruit in my mind. Bobby: Right. I mean, only 30% of New York City's residents live in owner occupied housing. But that owner occupied housing constitutes a disproportionate share of New York City's land mass. A pretty significant share of New York City's land mass. And even in Manhattan, there's lower Manhattan there's relative to Manhattan, at least there's some lower density neighborhoods that could accommodate a lot more housing growth. Right. Like the West Village. Greenwich Village soho that area. I live in, like, a medium density neighborhood, about 40,000 people per square mile, which compared to most places in the US. MGM: Is extremely high. Bobby: But Ridgewood borders Bushwick, which is much, much denser. For example, I live in a neighborhood that builds virtually no housing. The community district that I'm in, which includes Ridgewood, Massbeth, Glendale, Middle Villages, are all Queens neighborhoods, over 150,000 people in total, built something like 13 income restricted affordable units over five year period from 2015 to 2020. I mean, just absolutely dismal pathetic. And Ridgewood is the dentist of those neighborhoods. Middle Village is a predominantly R-2, R-3, R-4, four, like, really low density zoning designations, lots of single family housing. So I think there is a lot of potential in these predominantly homeowner neighborhoods for new housing development. MGM: Yeah, just like, in the biggest sense, New York City, it's a real city, it's a great city, but it is kind of sad. Like, everything good was built about a century ago, and you really hope you do something. It's just so sad. It's like the Second Avenue subway just sucks. As far as compared to the classic stuff. So I feel like we have to do a lot of stuff different to kind of make new stuff that's going to be built as well as the old stuff. But I'm optimistic in some senses that we can at least stop fussing around. We stop kind of bending over backwards for busybodies and weird stuff. Bobby: Yeah, absolutely. Well, yeah, I would love to see the municipality of New York actually revive its own development. Hell yeah, that would be wonderful. And I'd love to see the municipality of New York reform its capital planning and capital budgeting processes. Right. The city spends a million dollars to renovate a kitchen in a fire station right now. It's completely outrageous. The city used to build a lot of stuff, and a lot of that built by the public sector not been the case for a long time. MGM: Yeah, I mean, Tammany was corrupt, but they had public works, whereas now you get corrupt administrations which kind of know how to do not much whole at anything. So it's pretty sad. Bobby: Yeah. It's challenging because the public sector hasn't been a developer for so long. There's no institutional knowledge, there's no in house knowledge there. And so the public sector is just so dependent on consulting firms and contractors to do all of this work and it's just a vicious cycle at this point. MGM: Yeah, I don't know too about just public land ownership in general. Do they cry poor of like, oh, we have no possibility of getting new land to build on? Bobby: Yeah, it's a good question. I'm not sure how much land New York City the municipality owns compared to other municipalities in the US. MGM: Which is pretty low across the board, except for perhaps peripheral. I mean, what you really want is to own huge amounts in the heart of the city and everything, which is certainly not the case. It's all privatized. Bobby: Yeah. The municipality was a large landowner all through the but the policy was always to sell off surplus lands to auction off those assets, including residential property that was redeveloped as market rate property, but also residential property that was redeveloped as income restricted. 100% affordable housing. Yeah. No matter what it is for the most part now owned by the private sector, whether that's for profit entity or at least a nominally nonprofit entity in any case. MGM: Yeah, a lot to dig into, but I think you definitely answered a lot of my questions, and I think it seems like we covered what we wanted to as far as the general shape of this very complicated and confusing system. Bobby: Hey, I had a lot of fun. I love this podcast. It's one of my favorite podcasts and I love taxes. I'm kind of a freak in that regard. MGM: Well, that's the ideal guest then. Thanks for making the time. We have been talking about property tax and more in New York City. You can find our. guest at the handle @vastsituation on Twitter. Since we recorded a lot of interesting fights at the state level; kind of disappointing fights that saw everything from zoning reform, good cause and 421A extension all get defeated and made no one happy. Maybe we'll get into that in a future episode sometime. But in any case, you can find this episode and all previous episodes of the Henry George Program at the website seethecat.org. This is a presentation of KZSU Stanford.