Office skeptical of annual losses that REBNY-backed study said could hit $2B
By Adam Pincus
The city’s Independent Budget Office does not anticipate that proposed changes to rent regulations being considered in Albany will reduce property tax revenues to the city in the near term, the office said in a statement.
The IBO maintains that position even as the intent of the rent reform legislation is to reduce the ability of landlords to increase rents at the same time as taxes and other expenses tend to rise. A study commissioned by the city’s largest industry trade group, the Real Estate Board of New York, estimated the annual tax hit could be as much as $2 billion per year.
“At this juncture, we don’t see a particularly strong risk to projected growth in property tax revenue from proposed changes to rent regulation, especially in the short term,” IBO spokesperson Doug Turetsky said in an email to PincusCo Media.
The property tax revenue to the city totals approximately $29 billion per year and makes up about a third of the city’s budget, so any shift to the tax base is critical.
In addition the growth in net operating income, which is used to determine taxes for properties of 11 units and more, has already slowed or perhaps declined, on the heels of two years during which the Rent Guidelines Board gave 0 percent increases for 1-year leases. The RGB reported earlier this year that in 2017, the most recent data available, NOI rose by either 0.4 percent or declined by 5 percent.
Jonas Shaende, chief economist at the liberal-leaning Fiscal Policy Institute, did not expect tax revenues to decline on account of any new regulations, and if they were to fall, the decline would not be precipitous.
“It’s not likely to create a short-term revenue issue for the city,” Shaende said. Furthermore, he suggested there could be unpredictable consequences that could benefit the city. For example rent law changes could reduce the value of multifamily properties, in turn lowering their debt load and leading to a realignment of ownership and business strategies.
Or if housing became relatively more affordable, the number of homeless could decline and reduce the need for homeless services in the budget, which would be an offset to real estate tax receipts.
Real estate attorney Stuart Saft, a partner at Holland & Knight, in contrast, saw a dire situation.
“I think we are on the edge of an abyss right now,” Saft said. “It could cause a tremendous decline in the property values and in the ability of the city and state to have the revenue to even do what they are presently doing.”
REBNY viewed the tax implications in the same light.
“The potential policy changes to rent stabilization could reduce annual property tax revenue by up to $2 billion per year due to steep drops in real estate value,” according to the white paper from the REBNY-backed Taxpayers for an Affordable New York, based on data calculated by the real estate consulting firm HR&A Advisors.
The HR&A study concluded that by the fifth year after implementation of the new laws, there was the potential for an NOI reduction of between 20 percent and 30 percent for pre-1947 buildings and between 10 percent and 20 percent for post-1947 buildings, creating a property tax revenue reduction of $1.3 billion to $2 billion per year.
For the analysis, HR&A considered the possible impact of bills that proposed the elimination of high-rent vacancy decontrol now set at $2,700; elimination of the 20 percent vacancy bonus; elimination of major capital improvements (MCI) increases; elimination of individual apartment improvements (IAI) increases; and making the preferential rent the legal rent.