A key theme in the Nov. 4 election for New York City mayor has been housing affordability, including the persistent issue of how much homeowners pay in real estate property taxes.
City leaders have wrestled with what to do about the issue since the state legislature implemented the current tax system in 1983. It’s a system that many residents view as overly complex and unfair because it results in the owners of modest houses in outlying boroughs such as Staten Island and Queens paying taxes at higher rates than the residents of luxury condos in Manhattan high-rises. Critics also say this system effectively shifts the tax burden from owners to renters.
This inequality is the result of several factors, including caps on the amount an owner’s taxes can rise over a period of time. The state wanted caps to reduce the risk of owners seeing their taxes skyrocket as market values do. For people who own single-family houses or those with up to three residential units, the cap is 6% annually or 20% over five years. There’s a slightly higher cap for buildings with up to 10 units.
Critics argue that the caps benefit owners of high-end houses in Manhattan and certain parts of Brooklyn much more than those who own houses in less affluent neighborhoods. That's because high-end houses have seen their market values, or what they can sell for, far outpace their tax assessments, the value the city assigns houses for the purpose of calculating tax bills. Properties worth less than $600,000 face an average effective tax rate that is as much as three times higher than those worth over $1 million, according to an analysis this year by the nonprofit group Community Service Society of New York. The effective property tax rate is based on a home's market value, rather than the city's assessment.
A second factor is the city’s use of fractional assessment, in which owners of one-, two- or three-unit houses pay taxes on just 6% of their property value, while owners of large apartment buildings and other types of property pay on 45%. This helps small owners but may lead owners of large apartment buildings to charge their renters more to cover high tax bills.
Another critical factor is that city assessors determine the values of large condos and cooperatives by comparing them to apartment buildings, rather than sales of other owner-occupied structures. And rather than capping how quickly their taxes can go up, the city offers condo and co-op owners tax abatements and exemptions that aren’t available to single-family and other small-house owners.
A lawsuit aims to force changes
Tax Equity Now New York, a coalition of advocacy groups and rental property management companies, sought to force the city to change the tax system through a lawsuit it filed in 2017. Among other things, the coalition said the current system is racially discriminatory, since many of the neighborhoods that have unfair tax burdens are made up largely of people of color.
In March 2024, the State of New York Court of Appeals revived the case after a lower court dismissed it and returned the matter to the Manhattan Supreme Court. The appeals court suggested the city could take action to improve the property tax system by reducing one-, two- or three-family homeowners’ fractional assessment to less than 6%.
“The city has done nothing since the decision was made last March,” Martha Stark, Tax Equity Now’s policy director, told Homes.com. “We had hoped they would at least reduce the assessment for homeowners who have been paying [too much] for a number of years.”
A spokesperson for Mayor Eric Adams blamed the state legislature in comments to Homes.com, since it hadn’t acted on a proposal he offered earlier this year. It’s unclear what he proposed. State Senator Luis Sepulveda, who represents part of the Bronx, told Homes.com that a bill he introduced during the last legislative session was delayed until next year because of scheduling issues.
“I support efforts to modernize the property tax structure in a way that makes it fairer, simpler and reflective of the true needs of New Yorkers,” Sepulveda said.
Report's proposals result in winners but also losers
Previous mayors have tried to address the property tax challenge, notably Adams’ predecessor, Bill de Blasio, who organized an advisory commission to study the issue. The commission released a list of 10 recommendations just before de Blasio left office in late 2021.
Its proposals, to be phased in over five years, included taxing condos and co-ops the same way as single-family houses; assessing property at full market value rather than a fraction of it; and eliminating the caps on how much taxes can rise each year. The city should also provide a homestead exemption for owners with incomes of up to $500,000, the commission said, as well as tax relief for low-income owners.
As proposed, the commission’s ideas would result in lower taxes for 70% of New Yorkers, but higher taxes for the remaining 30%, Preston Niblack, Adams’ finance chief, said during a podcast discussion in July at the State University of New York’s Rockefeller Institute of Government. While the Adams administration supported some reforms, it was preoccupied with the potential negative impact for that 30%, Niblack said.
“It created a permanent fix to all of these problems, [but] it did so with a lot of disruption to taxpayers, especially, of course, the taxpayers who’d been benefiting from the system for a long time,” he said.
Moreover, some of those same taxpayers perceive the city’s tax burden to be excessive, not just property taxes, but also the "mansion tax" on high-priced real estate and other living costs in an expensive city. The state of New York imposes a one-time 1% transfer tax on properties when they sell for $1 million or more, and the city and state impose additional one-time taxes on sales of $2 million or higher.
“We have some of the highest property taxes in the nation in New York, so any increase comes on the heel of already heightened inflation,” Jules Garcia, a real estate agent for Coldwell Banker Warburg, told Homes.com.
The city shouldn’t assume it has to raise taxes on some residents to restore fairness to others, Stark said.
“Maybe we should be lowering taxes for everybody,” she said. “People say that’s unrealistic because the city needs the money, but you can’t put an extension on a house that’s broken. The city should focus on making the tax more fair, so if they want to raise taxes, at least it’s on a firm foundation.”