New York’s highest court recently gave the green light to a lawsuit alleging that property owners in underprivileged areas of New York City pay more than their fair share of property taxes. And since high property taxes drive up rent prices, homeowners are not the only ones affected. Renters also face higher-than-necessary housing costs.
A potential resolution to the lawsuit could involve property tax increases focused on New York’s wealthiest residents. Property taxes are New York City’s largest source of revenue, at approximately $35 billion per year.
In a statement, Jay Martin, executive director of the Community Housing Improvement Program, which represents landlords of rent-stabilized buildings, referred to New York City’s property tax system as “inequitable and systemically racist,” saying that it causes “skyrocketing tax hikes on older rent-stabilized buildings, which provide the majority of the affordable housing in New York City, [while] wealthy homeowners are given huge tax breaks.”
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Lawmakers have introduced several failed proposals for property tax reform over the years. However, the New York Court of Appeals decision to return the lawsuit to the lower courts could be the push needed for legislative change.
If that change comes about, the “huge tax breaks” could soon come to an end for New York’s wealthy property owners, and tenants in high-end condos could also see rent increases as a result.
NYC property tax lawsuit
The lawsuit, filed by Tax Equity Now New York (TENNY) is not new. (The original complaint was filed in 2017 but dismissed by a lower court a few years later.) However, the state supreme court’s decision on March 19, 2024, revived some of TENNY’s allegations.
- Many residential housing units — whether condominiums (less than three stories) or rent-stabilized apartments — belong to the same tax class and are assessed at the same rate.
- The annual New York property tax cap for assessments causes properties with quickly appreciating values to be taxed at lower rates than others.
TEENY alleges that taken together, these factors are discriminatory and promote segregation within the city. When speaking to reporters during a press conference, New York Gov. Kathy Houchul referred to the lawsuit’s revival as a “dramatic shift” and said she plans to discuss possible solutions with New York City Mayor Eric Adams.
The city is facing a multi-billion dollar deficit over the next few years, so, it seems that simply lowering taxes for those harmed by the city’s property tax system would only address part of the problem.
Property tax increase
Lawmakers have not recently proposed any solutions, but the New York City Advisory Commission on Property Tax Reform released a report with recommendations just before Mayor Adams took office two years ago. One of those recommendations was to remove assessed value growth caps. (Assessment caps limit how much the assessed value of a property can increase from one period to the next.)
Raising the property tax assessment cap in New York could prevent properties with slowly appreciating values from being taxed at higher rates than quickly appreciating ones. However, if that happens, many New Yorkers, not just the wealthy, could experience much higher tax bills when home values rise significantly.
For example, national average home prices rose more than 40% between 2020 and 2022, and property owners with low and moderate incomes were not immune to the changes. However, the state’s assessment cap helped prevent property tax bills from becoming too high.
- Under current New York state law, property tax assessments cannot increase more than 6% in one year.
- The New York state assessment cap is 20% in five years.
New Yorkers already face some of the highest property taxes in the country, with a median annual property tax bill of $6,303, according to the latest U.S. Census Bureau data. And depending on the solution lawmakers reach — if they reach one at all — some homeowners could soon pay even more.
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