Tag Archives: Furman Center

Affordable Housing and Air Rights in NYC

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NYU’s Furman Center released a report, Unlocking the Right to Build: Designing a More Flexible System for Transferring Development Rights. While its title does not reflect it, the report is really about increasing the supply of affordable housing in New York City. It opens,

New York City faces a severe shortage of affordable housing.  . . . Addressing this shortage of affordable housing is one of the biggest challenges facing the new de Blasio administration. The city’s affordable housing policy will undoubtedly require many strategies, from preserving the existing stock of affordable units to encouraging the construction of new affordable units. Over the past decades, the city has managed to subsidize the development of new affordable units in part by providing developers with land the city had acquired when owners abandoned properties or lost them through tax foreclosures during the fiscal crisis of the 1970s. Almost none of that land remains available, and the high cost of privately owned land poses significant barriers to the production of new affordable housing.

In this brief, we explore the potential of one strategy the city could use to encourage the production of affordable housing despite the high cost of land: allowing the transfer of unused development rights. As we describe in further detail below, the city’s zoning ordinance currently allows owners of buildings that are underbuilt to transfer their unused development capacity (often referred to as transferable development rights or TDRs) to another lot in certain circumstances. (1-2, footnotes omitted)

The report estimates that buildings below 59th Street in Manhattan that cannot use all of their development rights because of landmark restrictions could generate sufficient TDRs to produce about 7,000 affordable housing units. That number would be a significant step toward Mayor de Blasio’s goal of producing or preserving 200,000 units of affordable housing, so there is no doubt that this policy is worth a look. And the fact that one of the authors of the report, Vicki Been, is now the Commissioner of NYC’s Department of Housing Preservation and Development will ensure that it does get such a look!

The report acknowledges that loosening the restrictions on TDRs has downsides as well, such as the possible construction of big buildings that are out context of neighboring properties. But the report is intended as a “first step” in the exploration of an innovative land use policy. (19) And it certainly is a step in the right direction.

Reforming NYC’s Property Tax Regime

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Andrew Hayashi has posted Property Taxes and Their Limits: Evidence from New York City to SSRN. There probably could not be a more obscure and dull topic than this to the general reader (and coming from me, as the author of this blog, that is saying something!). But for those of us who think about such things, this is an incredibly important topic that is at its heart fundamentally about fairness and treating like people alike.

Hayashi argues that

The property tax is the largest source of tax revenue for local governments. It is also an almost irresistible policy instrument for municipalities, which typically do not have control over any other tax with which to influence the urban landscape and the local distribution of income and wealth. The widespread use of the property tax for planning and redistribution means that virtually no jurisdiction straightforwardly calculates the tax liability for a property as a fixed percentage of its market value. Instead, property tax rates tend to vary with the use to which a property is put or the identity of its owner. As a consequence, many of the potential benefits of the property tax, such as ease of administration, transparency, the clear reflection of the costs and benefits of local services, and the intuitive fairness of imposing taxes in proportion to property wealth, are lost. (2, footnotes omitted)

He concludes

The property tax is a hated tax, but attempts to curtail its most offensive feature, the rapid increase in taxes that can accompany paper gains in property value, have had unintended distributional consequences that are hard to justify on policy grounds. In New York City, the caps are regressive and tend to benefit new homebuyers and sellers rather than current homeowners on fixed incomes. The caps should be replaced with a property tax circuit breaker [that limits increases for lower-income homeowners] or deferral system [that delays full payment until the property is conveyed]. (27)

This issue is even bigger than these selections suggest as there are big disparities in the tax burden among different types of property. For example similarly priced single family homes have a lower tax burden than coops or condos in multifamily properties. NYU’s Furman Center (with which Hayashi is affiliated) has studied these issues and, even better, has highlighted them as part of the De Blasio transition.

Property tax fairness is not a Republican or a Democratic issue — it is a good government issue. Hopefully, the De Blasio  Department of Finance will take up this obscure but important issue. Fairness demands it.