There are two main takeaways from CityLab’s newest story, “Why Billionaires Don’t Pay Property Taxes in New York.” CityLab is a project of The Atlantic, a thoughtful magazine that sometimes doesn’t think through things enough.
The story is about property tax rates in New York City. What it misses is centuries of evidence that rent control laws and their offshoots only serve to dry up low-cost housing, and that “soak the rich” schemes never, ever work.
You know what does work? Uniformly low tax rates with a broad tax base. More on that later.
“Thanks to the structure of city and state tax codes, the billionaires buying pieds-￠-terre in the sky over Central Park are hardly paying property taxes at all,” writes Kriston Capps. “The values of these new condos are being assessed at just a fraction of what they’re worth. And buyers are paying only a fraction of that fraction in property taxes.”
This is an important issue in New York City, Capps writes.
“For one thing, the property-tax levy is New York City’s single largest source of revenue,” she notes. “The city is leaving money behind by failing to tax the most valuable homes at a rate closer to their market value. Meanwhile, well apart from the ultra-luxury condos, the city is overtaxing apartment buildings, whose renters are struggling the most with affordability. These outcomes go hand in hand.”
Her analysis is correct — but that’s the nature of the beast with property taxes. Property owners have a right to contest the high valuations they feel are unfair. And with good lawyers and accountants, they often win. Second, of course owners pass the ever-rising property tax rates onto renters. These are income properties, and no one can give those away for free.
What Capps recommends is rent control by another name — revamping property taxes (raising them for owners) while protecting renters from hikes.
Rent control fails — every time. That’s because it skews markets. If investors can’t make money on rental properties, then they stop investing in them. If they can only make money on high-end housing, then they build that — driving out lower-priced housing.
A few years ago, even the Los Angeles Times recommended abandoning rent control in that city.
“The city’s law, like all rent control, has failed to accomplish its objectives in the more than 30 years since it was passed,” the Times opined. “Rent control is widely accepted by many economists to have had an adverse effect on both the quantity and quality of housing.”
“Soak the rich” schemes also fail, because the rich are pretty good at avoidance. As long as tax rates are high, they have a lot of incentive to find tax breaks.
What does work is simple: low rates on a broad tax base. New York City could achieve its aims by lowering its property tax rates and eliminating some deductions and set-asides.
Why does this matter in Tyler, Texas? Because summer is budget season — our local taxing entities are planning to set their own tax rates. The same laws of economics apply.