Thirty years of free property taxes for landlords might do it.
More than 87 percent of the rental units in New York City are unsubsidized. Just shy of a million affordable rental apartments are unregulated, while a hair more than a million are rent-controlled. But government-subsidized public housing? Just 300,000 units of a total 2.2 million rental units in 2014.
The city is struggling mightily to maintain its affordable rental-housing stock. New York has a variety of tools to persuade landlords to keep rents affordable. However, the incentives for landlords to not make big rent hikes were designed in a different era, with a different housing market in mind, and they don’t do the trick any more.
So what’s the alternative? Build some incentives that don’t pretend that New York City is still stuck in the 1970s, and you may be able to make affordable housing out of buildings that aren’t even subject to rent control.
That’s the gist of a new brief from New York University’s Furman Center, which teases out what might happen if New York launched a new affordable-housing incentive based on the property levy. That’s an incentive more in keeping with a market in which property values are sky-high.
Most incentives for multifamily housing are outdated. The J-51 break, for example, offers a property-tax abatement to landlords in order to fund building improvements, and it sets certain rent restrictions on improved units. The Citizens Housing Planning Council describes J-51 as “the most successful housing rehabilitation program in New York City history.” Yet it was passed at a time—in 1977—when rents could not possibly pay for the cost of maintaining or upgrading a multifamily building. Now that rents can absolutely cover maintenance costs, building owners are foregoing J-51 in order to avoid the rent-control rules that flow with the incentive.
To supplement J-51 (plus the other multifamily tax breaks, which don’t address affordability at all), the Furman Center proposes a dramatic incentive to lure landlords into keeping rents affordable:
Here we explore the attractiveness of a program in which an owner would pay no property taxes for 30 years; all units would be entered into stabilization for the duration of the benefit (meaning no decontrol); and Vacancy Allowance increases and IAIs would be prohibited but owners would be able to raise rents based on the Rent Guidelines Board (RGB) lease renewal increases and by making Major Capital Improvements (MCIs).
Further, the brief adds, the benefit would be means-tested. Tenants would be subject to an income requirement to make sure that higher-income renters don’t absorb all the benefits (the way they do in many rent-controlled housing markets).
The thought experiment depends in large part on an unknown variable: the rate of market-rent growth over the next 30 years. The outcomes are risky for both the city and landlords: In a slow market, the landlords who take the exemption win, while in a strong market, the city wins on exemptions. So the brief teases out the expected costs and benefits of the Furman exemption for two kinds of units (rent controlled and unregulated) under three scenarios: slower, average, and rapid growth.
There is one scenario where everyone wins—albeit a narrow one. In an average market, the owner of an unregulated building would benefit from the break, and by the same token, the city would make affordable housing out of the units that would otherwise see the greatest rent increases.
“If owners think their building is in a neighborhood likely to experience rapid rent increases, they are not likely to participate in a program like the one we have outlined,” writes Jessica Yager, the report’s author. “But, owners who are less optimistic about rent growth in their neighborhood may be willing to sign up in exchange for the certainty of a 30-year tax break.”
Call the mayor already, right? Maybe, although nothing about the market today suggests that rent will grow any way except dramatically. In a rapid-growth market, the Furman Center’s exemption would cost a lot more for New York City taxpayers, “because property tax liability is a function of rents.”
If lawmakers in New York ever get an opportunity to monkey around with property taxes, they should immediately jack up the rate on single-family homes and condos and slash property taxes for apartment buildings—since the state law that rewards wealthy owners and punishes poorer renters is a major driver of the affordability crisis in New York.
Under certain circumstances, New York City could guarantee a hell of a lot of affordable rental housing for decades—perhaps hundreds of thousands more units than Mayor Bill de Blasio has ever dared to dream. But not without a cost.
“If it decides to provide a tax benefit to existing buildings to maintain affordable rents,” the report reads, “the city will have to decide whether it is worth providing a benefit in some places where it will never be needed in order to also provide it in places where it will be needed.”