“The governor and New York State Legislature should begin a process of discarding all property tax abatements that primarily serve the interests of landlords and developers (not tenants), and end the patchwork of other taxes required to make up the subsequent lost revenue from them.”
Adi Talwar
A May evening view of Manhattan over the East River.The question now arises whether the J-51 property tax abatement should also expire with that of 421a, which expired on June 15, 2022. The inequity of 421a goes without question, yet the inequity of J-51 is obscure. In this report, this obscurity is lifted sufficiently to allow legislators to comfortably allow J-51 to also expire on June 30, 2022. Touting 421a and J-51 as affordable housing’s only game in town is a flawed idea, as other communities demonstrate.
J-51 taxation abatements began in post-war 1955 so that affordable rental housing may have hot water plumbing; afterward it creeped to abate taxes on all building renovations, valued at 8.33 to 12.5 percent of renovation cost every year for 20 years and up to 34 years of no-increase-in-property-taxes, and (for tenants) stabilized rents while the J-51 abatements are in place.
What’s the problem with that? Some think we all must beat the tax monster with a stick, so let’s shout hooray for those who strike a blow! This misguided view ignores the fact that New York City pays its bills with collected revenue, so a loss (i.e., foregone taxes through these abatements) requires an increase for everyone else.
In 1984, it was estimated New York City lost $2 billion over the life of all J-51 abatements in place at the time and the beneficiaries were primarily landlords and developers in Manhattan’s wealthier neighborhoods; hardly equitable (more recent estimates of costs could not be found, but given 38 years of creep opportunity, the amount is likely to rival the $1.8 billion/year lost with 421a.
Why are New Yorkers allowing this to happen to them? Is it to get permanent affordable housing, rental or otherwise? If its permanency, tax abatements are not the answer, as the abatements all have time limits, and stabilized rents only last for the life of the J-51 abatement periods.
There’s a better way. Consensus among affordable housing advocates is that Community Land Trusts (CLTs) uniquely offer permanency, and do so because tenants avoid taking out mortgages for the trust’s land value; they only finance the building’s value and upon sale, they only sell a share of the building value—a tradeoff to secure permanent affordability. Over the years we’ve seen waves of attempts by landlords and developers to game J-51 to push tenants out of their stabilized units, yet they push these tenants to the foreground in J-51 advocacy while stepping back to hide their wealth-generating schemes.
New York City should revisit the hugely successful tax reform advocated by Lawson Purdy (president of the NYC Department on Taxes and Assessments) and Gov. Al Smith that eliminated the tax on building value, thereby making the property tax a land value tax. The result was a building boom in the 1920s that allowed New Yorkers to weather the approaching Depression of the 1930s.
In tandem with Congressional legislators, we should enact 100 percent federal income tax deductibility on all state and local taxes (including taxes on land value, not limited to $10,000) to diminish the inequity of taxing away labor’s wages.
The governor and New York State Legislature should begin a process of discarding all property tax abatements that primarily serve the interests of landlords and developers (not tenants), and end the patchwork of other taxes required to make up the subsequent lost revenue from them. Go back to Purdy’s simple but effective removal of property taxes from buildings, making NYC once again governed by the equitable system of land value taxation–what economists have judged to be the most equitable tax.
Marty Rowland is a social justice lecturer and progressive advocate of affordable housing
3 thoughts on “Opinion: Let the J-51 Property Tax Abatement Die, Too ”
Community Land Trusts (CLTs) and land value taxation both sound like scams.
Community land trusts are, to be sure, a band-aid on the serious problem of high and skyrocketing land costs. CLTs in an urban environment can help to increase the supply of affordable housing but they can only achieve scale if implemented as a scattered-site program throughout the city. The CLT, as a not-for-profit entity, leases the land underneath the house or multi-unit building to the building owner charging an annual ground rent far lower than what a private land owner would charge. The condition is that the housing unit or condominium or coop units are reserved for households whose incomes are at the low end. So, it helps preserve housing that would otherwise be unaffordable to a large percentage of households.
As for land value taxation, see me comments. The value of land is not caused by any individual land owner but by the aggregate public investment in the infrastructure and amenities that attract people and commerce. This is why the value of land in the central business district of any city is calculated by the square foot. Move away from the center and land value, generally speaking, falls. Requiring owners of land to pay for the benefits of the location is not taxation but a just payment for these benefits as recognized by market forces.
New York City would become a far more affordable place in which to live and work and do business if the city gradually moved in the direction of a land-value only property tax base. Economists as diverse in their thinking as Milton Friedman, John Kenneth Galbraith and Joseph Stiglitz have each endorsed this policy as economically efficient and far more just than the conventional property tax.
A land-value only property tax removes the potential to profit from acquiring locations purely for speculation rather than for development. Taxing land’s value creates an incentive to all land owners to bring the land held to its highest, best use, or selling to someone who will.