Tentative property tax assessments for New York City are up, reflecting the city’s recovery. For landlords, however, the gains signal a tax hike.
A preliminary report from the Department of Finance this week shows rental buildings’ market value jumped by 11.7 percent, while the assessed value that owners are taxed on rose by 8.6 percent.
Although the figures represent a hefty jump for owners, the increase to multifamily assessments over three years is just 2.3 percent, thanks to initial reductions caused by the pandemic. (Building owners can challenge tax assessments at the administrative level, in court, or both.)
Unfortunately for landlords, revenue streams today are a far cry from where they stood in 2019.
Since the rent law passed in the summer of 2019, New York owners of rent-regulated buildings have complained that the reform makes it difficult to cover property taxes. The law severely limited rent increases on regulated apartments but did nothing to address landlords’ expenses, such as property taxes, mortgage interest, utilities and insurance.
Then came the pandemic and with it a near-two-year moratorium that spared tenants from eviction for not paying rent.
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The Community Housing Improvement Program, a landlord group, said a 2020 survey found that the average rent-stabilized-building owner spent about 40 percent of collected rent on property taxes. In many cases, the taxes consumed more than half of their income.
The moratorium expired last week, giving landlords hope of shoring up their rent rolls by taking nonpaying tenants to court. But now there’s another revenue threat lurking in the state legislature: good cause eviction. The bill would make it difficult to raise a tenant’s rent more than 3 percent or 1.5 percent of the inflation rate, whichever is higher, in a given year.
A spokesperson for CHIP said if good cause eviction passes — a possibility in this legislative session, but far from a given — “no property owner would be able to absorb these massive property tax increases because the legislation does not account for rising property taxes when setting a standard of a ‘reasonable’ rent increase.”
Tenant advocates had another take.
“Wrong. Wrong. Wrong,” said Michael McKee, treasurer of the Tenants Political Action Committee. “Can you imagine a judge ruling against a landlord in such a case?”
Good cause eviction would give tenants a new defense if they are sued for eviction over nonpayment of rent. A tenant could argue that the rent was raised by an “unreasonable” amount. The landlord would need to prove that the rent increase was justified.
McKee’s argument is that judges would allow rent hikes above the good-cause threshold to cover higher property taxes.
“I think most judges can be trusted to determine where a landlord has a legitimate reason for a rent increase greater [than that],” he said. “Versus where a landlord is simply trying to make the rent unaffordable for a tenant he wants to get rid of.”
The real estate industry, however, believes the legislation would discourage landlords from raising the rent beyond the threshold in the first place. If they did, the tenant could not pay and force the landlord to justify the increase in court. New York owners generally turn to housing court only as a last resort.
While good cause remains iffy, CHIP considers higher property taxes a certainty. The group said its members have reported assessment increases of more than 40 percent at a building in Brownsville, Brooklyn, and another in the Bronx.
The organization said tenants will suffer the impact.
“Raising property taxes does one of two things: It either raises rents, or it leads to less investment in a building,” said Jay Martin, executive director of CHIP.
“If city elected officials want safe, clean, affordable housing then they need to stop bleeding renters and their housing providers with outrageous property tax increases,” he said. “And [state lawmakers] definitely shouldn’t make this worse by passing good cause eviction.”
One thing that landlords and tenants agree on is that property taxes are disproportionately high on rental buildings. A mayoral commission last month released recommendations to make the system fairer, but it is unknown whether state lawmakers will pursue them. The last major reform was in 1981.