Tag Archives: revenue

Tax Liens and Affordable Housing

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paperwork-1054423_1280

NYU’s Furman Center has released a Data Brief, Selling the Debt: Properties Affected by the Sale of New York City Tax Liens. It opens,

When properties in New York City accrue taxes or assessments, those debts become liens against the property. If the debt remains unpaid for long enough, the city is authorized to sell the lien to a third party. In practice, the city retains some liens (because it is legally required to do so in some cases and for strategic reasons in other cases), but it sells many of the liens that are eligible for sale. In this fact brief, we explore the types of properties subject to tax lien sales but exclude Staten Island due to data limitations and exclude condominium units. Between 2010 and 2015, we find that 15,038 individual properties with 43,616 residential units were impacted by the tax lien sale. We answer three questions: (i) what kinds of properties have had a municipal lien sold in recent years? (ii) where are those properties located in the city? (iii) what happens to a property following a lien sale?

We present this information to shine a light on a somewhat obscure process that affects a significant number of properties in the city. Also, the lien sale has a number of policy implications. Tax delinquency can be an indicator of distress; property owners who have not paid their taxes may also cut back on building maintenance and investment. This could have ramifications for owners, tenants, and neighborhoods. The city, social service providers, and practitioners in the community development and housing fields may find this descriptive information helpful as they think about interventions related to the health of housing and neighborhoods.

In addition, the choice of whether to retain a tax lien or to sell the lien also presents a policy choice for the city—selling the lien allows the city to collect needed revenue it is owed; but, with the sale, the city gives up the leverage that it holds over delinquent property owners, which can be used in some cases to move properties into affordable housing programs or meet other strategic goals. The city could retain that leverage by selling fewer liens; but, then it would not only lose the revenue generated by the sale, it would also incur the cost of foreclosing or alternative interventions. The lien sale is part of the city’s municipal debt collection program, and the city must be careful that policy changes do not undermine the city’s debt collection efforts.

With this fact brief, we aim to shed some light on the real world consequences and opportunities triggered by the city’s current treatment of municipal liens. (1-2, footnotes omitted)

New York City has sure come a long way from the 1970s when the City was authorized to foreclose on properties with tax liens. The issue then was that the owners of thousands of buildings did not think it was worth it to pay their taxes. Their preferred strategy was to stop paying their bills and collect rents until the City took their properties away from them. After the City took possession of these buildings, it repurposed many of them into affordable housing projects owned by a range of not-for-profit and for-profit entities.

The Furman brief does not report on why building owners are failing to pay their taxes today. It is reasonable to think that, at least as to multifamily buildings, it is because of operational issues more than because of fundamental problems relating to the profitability of real estate investments in New York City. This is supported by the fact that, when it comes to tax liens, “many if not most debts would be repaid before foreclosure.” (11) Thus, while this brief sheds light on this shadowy corner of the NYC real estate market, it does not seem (as the authors agree) that tax liens will open a path to increasing the stock of affordable housing in the City as it had in the 1980s and 1990s.

SF’s Airbnboom

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Brian Johnson & Dane Kantner

The Christian Science Monitor quoted me in San Francisco Votes Down Airbnb Limits: Can Competing Interests Be Balanced? It reads, in part,

A defeated ballot measure in San Francisco, which would have imposed further restrictions on users of Airbnb and similar websites, is a sign of how the issue of short-term housing rentals is vexing city governments in the United States and beyond.

From Fort Lauderdale, Fla., to Los Angeles, lawmakers and residents alike are struggling to balance the power of technological change with the many critics of the home-sharing industry: homeowners who complain about deterioration in the quality of life in residential neighborhoods, hotels that fret about lost revenues, and activists who say that short-term housing is stripping the marketplace of affordable long-term units.

Yet even some of the trend’s most ardent critics suggest that more restrictions are not necessarily the answer. Better enforcement of current laws would go a long way toward balancing the conflicting interests, they say.

*     *     *

On the other coast, just as many cities are struggling. New York City is still up in the air about how to handle the sharing economy, says Brooklyn Law School professor David Reiss, who has followed Airbnb’s evolution.

This week, Airbnb promised to provide detailed data to the New York City Council, he notes. “The company is doing this in part to fend off [legislation] that would severely limit their reach in NYC,” he says via e-mail. One piece of proposed legislation increases penalties for violations of existing laws, and another mandates that the city track illegal apartment conversions, according to Professor Reiss.

Still, the sharing economy is with us for the long term as consumers continue to vote with their wallets, he says. “The bottom line is that we are in a period of transition. And while it is unlikely that we will return to the pre-sharing economy, it is also unlikely that we will have a sharing economy that is driven just by market actors, without government regulation,” he adds.

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.