Property Tax Inequity’s Effect on Renters <Keith Dumanski kdumanski, kpd286>
Abstract:
This study will test
the relationship between the property tax rate and the affordability of
housing in New York City. The null hypothesis is that there is no relationship
between the property tax rate and the share of New York City residents that are
rent burdened, defined as allocating more than a third of their income towards
rent. The alternative hypothesis is that there is a positive relationship
between the property tax rate and the percentage of New Yorkers that are rent
burdened.
Introduction:
For over two decades,
New York City’s political leaders and independent analysts have acknowledged that
the City’s property tax system is fundamentally unfair and inequitable,
imposing substantially unequal tax bills on similarly appraised properties that
bear little relationship to properties’ actual market values. “The city’s tax
set-up is widely acknowledged to be irrational, unjust and absurdly complex (1).”
As numerous City Council officials have explained, “the current system is
rife with inequalities, with properties of similar value having very different
tax bills” (2). The City’s own Department of Finance, which is responsible for
the property tax system’s administration, likewise has criticized the system as
a source of profound “unfairness and inequity (3).” As the Furman Center for
Real Estate & Urban Policy at New York University (the “Furman Center”)
recently explained, New York City’s property tax system not only “generate[s]
enormous and persistent disparities in the taxes paid by condo and co-op owners
across neighborhoods,” but also provides for “radically different tax treatment
of equally valuable properties, depending on the use of the property and the
form in which it is owned”(4).
Throughout the United
States, each State establishes its own conduct for ascribing and collecting
property taxes. Almost universally, the tax for each property is
calculated as a measured “fair market value” multiplied by an assessment ratio
multiplied by a tax rate. States across the country do not subscribe to
any uniform methods to measure these rates and therefore each variable is
created varies widely. As opposed sales and income taxes which are set on
concrete values of the cost of an item or a salary, the value of property has
fixed intrinsic value since its set by a market. Therefore, jurisdictions
have had to develop methodologies to value properties so they can collect
taxes. This often includes measuring the size of the house, valuing how much it
had previously been sold for, calculating rental income, looking at the prices
of comparable properties or other artificial methods. Due to the
arbitrary nature of this, there has been significant scrutiny as to what
constitutes fairness in assessing a property’s value.
Due to their size and
complexity, New York City and Chicago are the only two city governments that
establish their own property tax rates and assessment systems. New York is
the largest and most economically unequal city in the country, and New York’s
property tax system is plagued by the same disparities and inequity that
plagues its population. I have spent several months assessing this data, as
demonstrated in the attached visualizations. Major findings include:
·
The property tax system is inherently regressive and favors the owners of more
expensive properties over property owners of lesser means on an increasing
scale;
·
The system is structurally racist and discriminates against minorities by
placing larger burdens on geographic areas with over 60% non-white population;
·
The system of assessing properties values is non-uniform and underassesses more
expensive properties on an increasing scale;
·
Political adjustment to the system, such as abatements and tax caps have only
further increased the inequity and caused more distress for New York City’s
lowest valued property owners;
·
Since 2008, the city has continuously increased property taxes as percentage of
the overall budget to unprecedented levels in modern history.
Traditionally the city has only raised property taxes as a percentage of the
overall budget as an emergency measure during periods of economic recession.
In this study, I investigated
how property taxes affect the cost of housing for rental units. New
York’s most vulnerable populations are renters since they cannot afford to
purchase property. Since rental buildings pay a significantly larger portion of
taxes I sought to determine whether a correlation exists between the property
tax rate and the percentage of new Yorkers that are rent burdened.
Data:
I compiled a
longitudinal panel dataset of tax and rent indicators in New York City using a
variety of publicly-available resources. The New York City Rent Guidelines
Board releases a yearly report entitled “Housing NYC: Rents, Markets and
Trends” which is shared publicly on its website (5) and contains the average
property taxes paid per apartment, the percentage of New Yorkers that are rent
burdened, and the mean price of apartments for market rate and rental
properties. To prepare the data, I had to manually copy and paste the
values into a table since it is not available through any automated
processes. Historical tax rates are available through the New York City
Department of Finance.
Methodology:
I ran a spearmans text to ascertain the relationship between the two variables of interest – the property tax rate
(independent variable) and rent burden (dependent variable). This gave me
correlation=0.77142857142857146, pvalue=0.072396501457725942
.
Conclusions:
This study fails to rejects the null hypothesis since the p value is .07 and is above .05 threshold and demonstrate with statistical significance that the correlation exists between property tax rates
and rent burden level.
Future work:
The findings of this test will be used to help support me effort to make property taxes equitable in New York.
Bibliography/ links
1. Dana Rubenstein, An Indescribable System,
Threatened, Politico.com (Apr. 2, 2014)
2. Michael Howard Saul, New York Council Proposes
To Overhaul Property Taxes: New Commission Would Make System More Equitable,
Wall St. Journal (Apr. 23, 2014).
3. Yoav Gonen, New Finance Commish: City
Property-Tax System Needs Change, N.Y. Post (Apr. 9, 2014).
4. Shifting The Burden: Examining The
Undertaxation Of Some Of The Most Valuable Properties In New York City at 3
(July 2013)