The city’s transfer tax revenue is already taking a hit from the sudden drop in apartment building sales. Property tax revenue, however, is unlikely to be affected for several years. And by then, Mayor Bill de Blasio will be gone, and Gov. Andrew Cuomo on his way out or running for a fourth term.
“The implications to these transaction taxes are immediate,” said Paimaan Lodhi, senior VP of the Real Estate Board of New York (REBNY).
During the state’s fiscal year from April 2018 to March 2019, it collected $1,119,610,824 in property tax transfer fees, of which $702,577,143 was from New York City alone.
But now, the city’s investment sales volume from the second to third quarter of 2019 is off 35%, and so is the tax revenue. City transfer tax collections were down $15,618,000, and state transfer taxes dropped by $3,867,500 based on $595,000,000 less in total transaction costs.
“Thirty-five percent quarter-to-quarter is definitely more than a seasonal change,” added Laura Tomana, a senior economist with REBNY.
Year-over-year, the third-quarter investment sales volume dropped by 59%, or $1,598,802,474, from $2,698,802,474 in 2018 to $1,100,000,000 in 2019. This left the city with $41,968,565 less in taxes, a 59% drop for the quarter. The state, which raised its transfer tax to .65% from .4%, was down 34%, or by $3,645,210.
Many owners are now holding apartments off the market for several reasons. “You only have $15,000 to renovate, and if you have an old person (who vacates the unit after decades and had a low rent) it will take way more than that to fix it up,” says Jay Martin, executive director of the Community Housing Improvement Program (CHIP), an owner group. “We are not talking about marble, but it’s the lead remediation and other improvements, and just getting an architect costs $5,000, and when those units aren’t available, it is a loss of value and loss of housing to the city.”
The first full year of the rent law, 2020, will show up in the tentative assessments released on Jan. 15, 2022. The tax bills start coming due July 1, 2022, for that fiscal year ending June 30, 2023.
“The pain is going to be protracted,” adds Martin.