The Game – Tax and the Basics of Zoning in E. Flatbush by Lou Cespedes
The name of the game is “property tax.” Who pays it? Who doesn’t, and why? Property taxes are NYC’s main revenue stream, accounting for 44% of the 2017 budget, which amounts to about $24 billion. Since 2000, NYC’s property value has tripled and skyrocketed particularly in Brooklyn. For homeowners the tax rate has not changed, but the property value in our district has, accounting for a roughly 20% year-on-year increase in our assessment and bill. This rapid rise in property value is directly tied to speculation, building permits and development.
Ironically, the discussion about re-zoning E. Flatbush has exacerbated this problem, causing exactly the opposite of the intended effect. Development can best be described as an opportunistic infection. It preys on the weakest cells in the body. Each home in our district is a cell. When one cell fails, it sets off a chain reaction. But what is the cause of this failure? Taxes! The average household income in E. Flatbush is 58k/yr. At current evaluation, if you are on the low end of that average, for example, a senior homeowner with limited income, you may be paying upward of 25% of income toward property tax. Combined with the new SALT tax limits, income earners have less deductions and disposable cash. This is unsustainable for most fixed income homeowners because it does not include maintenance, heat, or emergency repairs. For some paying taxes often means neglecting upkeep, others may face tax foreclosures.
Deteriorating homes that sit on lots zoned for higher density are vulnerable. Owners looking for a way out are more likely to sell to a developer, who will then “tear down” an existing structure and build a new multifamily. Why a multifamily? It’s simple; you get higher rent, which helps offset property tax. Developers prey on the cells with no defenses. Most “end-user” buyers will avoid homes in disrepair.
On average a home in E. Flatbush sells for 750k, but qualifying for a mortgage is not easy these days if you’re the average person in our community. If you bought your home during the white flight of the late 60’s and paid-off your mortgage, you are making a huge mistake by selling your house. You shouldn’t sell. But if you must, you should sell based on the value of your land, which in some cases is worth more than the house that sits on it. To a developer the value of your house is “zero”, but the land is worth millions.
City property tax, by design, incentivizes the uptick in density we’ve seen in Brooklyn. By rezoning, the city knows that raising property value increases tax liability, forcing small properties to go bust and therefore allowing greater development in a cycle; the avarice of the land at work. Since 1972 NY state has given developers a property tax abatement called 421-A. This is available to developers that build roughly 20 units or more. Once those taller buildings qualify for a 421-A they DO NOT pay property taxes for 15-25 years.
To make up the difference in lost revenue, the city will increase the value of your home because your neighborhood is “appraising” or improving. As these taller buildings come on line, the infection spreads, killing more cells faster until it finally reaches the financial limit of your household. Slow development and keeping our current zoning are the answer to this infirmity. We must accept that E. Flatbush is underdeveloped but there is already room to grow. We need not give developers more room. Keeping development limited – as it is now – will allow our community to acclimate and build-up immunity to this infection by educating homeowners on the true value of their properties, and the proper instruments available to them to remain stakeholders in their community.