> While the tax seems large, experts say the city’s antiquated assessment and valuation system dramatically undervalues properties, reducing the burden. City valuations can often be 10% or less of the true market value, they said.
I heard about a system for this that struck me as brilliant. Make someone declare the value of their property. Then the government has the choice of taxing them at the scheduled rate, or buying the property from them, for that cost.
TADA.
And if someone wants to artificially inflate the value of their home, to reflect the difficulty of moving out, finding a new secondary residence, etc, then that's their business. No worries. We'll tax that additional value, no problem.
I think this system goes back thousands of years. Why not use it?
> Why not use it?
It dramatically cuts housing security, and allows local governments to inflate their own property values by doing what is basically eminent domain without the requirement to show need. Make everyone pay taxes, use those to buy up homes, re-list the homes at a higher price. They can effectively price gouge using tax dollars. This could happen to you at literally any point, and that local government doesn't care if the house won't even sell as long as the other houses rise enough in value to cover the lost tax revenue.
I've also heard the same thing but allowing private citizens to buy them, which is almost worse. Anyone sufficiently well off can just wreck someone else's life. If I hate my neighbor and they report the real value of their house, I can force them to sell it to me so they have to move and I can resell it while only losing fees in the process. They would have to over-value their house by an amount that I'm not okay losing, which ends in a sort of auction of escalating values. At the very tippy top, if I'm Warren Buffet's neighbor there's probably not a value I can pay taxes on that would stop him from buying me out if he wanted. Any number that would be a meaningful loss to him is something I can't even pay the taxes on.
I wasn't explicit, but I was proposing this for the same non-primary residences that the NY law is talking about.
Now that I've explained that, do you still think this would "dramatically cut housing security"?
If you still feel this would make housing "insecure", because someone's secondary home, if it has a value over $1 million, is subject to this system I propose, then you and I have a fundamentally different idea of what "housing security" is.
No, I don't have any fears about housing security, that changes the concerns to be primarily around corruption on both sides of that.
On one hand, we're talking about taxes large enough to be multiples of a public official _per home_. Open bribery is an option, but there's also the potential to push some money into campaign funds for whoever controls the department in control of this and then under-valuing the home by a huge margin. The home valuation is subjective here, so there's no perjury for under-valuing your home by a huge margin.
The other side of this is more brazen, but would involve someone having some kind of influence over the government official that makes buy/not buy decisions, intentionally over-valuing the home, and then having the government buy it.
I also just don't really understand the point. In order for the government to make sane "buy or not buy" decisions, they have to know what the house is worth on the open market. If they already know what it's worth, why not just tax that value and skip these hoops? If they don't know and can't find that number then this policy is going to be a crapshoot because they don't know if the home owner is undervaluing the home or if that's what it's actually worth.
It isn't done because it has overt pathological economic characteristics. This forces the owner to write a long-term call option on a non-commodity asset without even collecting the offsetting risk premium expected for such a call option. This puts the asset permanently underwater by construction, which would crater asset values. The maths don't math. You can't just pick one side of a balanced equation and pretend the other side doesn't exist.
At least as important, this scheme is trivially exploitable for corruption and weaponization by government officials in countless ways that don't currently exist. This is not something that anyone should want to enable.
> It isn't done because it has overt pathological economic characteristics.
A secondary home over $1 million in value also has overt pathological economic characteristics. Especially if the taxes paid on it are tragically low.
> This forces the owner to write a long-term call option on a non-commodity asset without even collecting the offsetting risk premium expected for such a call option.
Eminent domain already exists.
> without even collecting the offsetting risk premium
You get to have a second home, in New York, with a value of over $1 million.
Yes, I'm proposing taxation and regulation on top of that.
But, knowing this law exists, everyone gets to make the choice whether they want it or not.
We also have the legal mandate to institute taxes in the first place. You also did not collect an offsetting risk premium for that, and had no right to expect one.
> This puts the asset permanently underwater by construction
Eminent domain already did that. And you're saying "permanently," but I think you could fairly easily steel-man my proposal to say that the government has a certain number of days after property taxes are paid to declare their intention to collect. That's different from "permanently."
I'm not an expert, by any means.
But you also just described what buying a house in an HOA is like. You have no idea what future fees will be like. And you have very little control. And many HOAs can foreclose on your house, if you don't pay their fees. John Oliver did a whole segment on it. And something like 80% of new home construction is under an HOA.
So, why should I have an over-abundance of sympathy for people, with a secondary home, in NY City, worth over $1 million?
Maybe the whole concept of a secondary home over $1 million in value, in New York city, should just not exist?
Or, maybe it should exist, but the taxes should be pretty damn high, and they should be based off of a pretty damn fair assessment of value. I'm all open to counter-proposals of how to get a more equitable assessment of value.
A million dollars isn't even that much these days - it isn't dynastic wealth, it is owning your own home these days. It especially isn't much in New York City - a long notoriously expensive area. A million dollars today is only about 400K in say, 1991. The average Brownstone in Brooklyn in the 1990s was over that. Not an amount to sneeze at certainly but treating it like unimaginable wealth is a lot like treating your Starbucks Manager like a CEO.
People's brains have been utterly broken by envy and combining the 'M' word or the 'B' word as the magical milestone causes them to lose all sense of scale. One needs to be well-off to get in that situation without inheritance, but it is more 'doctor or lawyer' levels of money. Hardly a level reserved for an aristocratic elite.
For a second home? In NY City?
I think someone has to be fairly elite to have a secondary, or tertiary home, in NY City, worth over $1 million.
Regardless, the entire point of this discussion is that people who have a secondary home can probably afford to pay more in taxes than other people can. I don't call that envy.
That's just a frank discussion of tax policy.
If you think taxes should be lower, because some government programs should be reduced, that's a perfectly fine discussion to have.
If you think governments shouldn't have to worry about a balanced budget, and maybe they should default on their debt (which is an argument the current President has insanely floated), that's a fine discussion to have.
At present, we're talking about secondary homes with a value over $1 million, in New York City, having an additional 4% tax.
And I was lamenting that home valuations appear to be unbelievably low, which would dramatically reduce the tax income of this law, and I was trying to propose a fix, for those homes.
If you think the only reason to have that discussion is because of envy, then I think you're not being fair to other people's motivations.
When people start using financial terminology outside the natural context, it's either gish gallop or justifying antisocial behavior.
It is a good thing this is the natural context for this terminology then, being the literal domain for which the terminology exists. If someone doesn't understand the fundamental concepts being discussed then why should anyone give credence to their opinion?
Your "gish gallop" and "justifying antisocial behavior" dismissal is almost literally how creationists dismiss discussions of evolution.
> If someone doesn't understand the fundamental concepts being discussed then why should anyone give credence to their opinion?
Because we're a democracy, we vote, and we might vote for foolish policies unless you take the time to explain to us, in language we can understand, why they're a bad idea.
It sucks that the burden is on you. I don't deny that. But the burden is on me to explain why electronic voting (without a paper trail) is bad, that climate change is real, that vaccines are essentially miraculous, and wearing a mask during a deadly global pandemic is a good thing.
And there's certainly a lot of people willing to use fancy terms to defend cryptocurrencies, but honestly, that doesn't mean they're right.
We all have to do labor to keep the electorate informed.
Forcing people to pay property tax on an inflated valuation of their house or face eviction sounds like a terrible system, actually. If you offered to buy my house for a number that I agreed was a perfectly fair market value that I didn't expect to be able to beat on the open market, I would say no immediately. You'd have to offer something like 50% over what I'd expect to get for me to seriously consider the offer.
It is very common to have goods where the price a buyer is willing to pay is smaller than the price a seller is willing to accept, and in a free market that simply results in no transaction happening. Forcing the transaction to happen is always going to make at least one side of the deal unhappy.
What if the city lets you declare your chosen value without being able to force you to sell, but if you ever sell at a higher value then you owe back-taxes on the difference?
And if the difference is more than X% then it’s fraud unless you can persuade a judge otherwise.
The loophole might be that Billionscorp LLC is listed as the property owner, and Jeff Billions technically only rents the penthouse from his own company, which lives forever, and never has to sell up. Closing that loophole by banning corporations from owning residential property would do everyone a favor.
You'd just end up arguing about when the property appreciated. The owner would say it all happened since the last tax payment was due.
It would also complicate the home buying negotiation. People would look at your recent tax payments and put a cap on the bids they would make based on what would trigger back taxes for you.
I was indeed assuming that if you declared a value of $X but then sold N years later for $Y, then you pay N*(Y-X) in taxes.
You are right to imply that it seems unfair if you discover in year 49 of your happy 50 year tenure that your Queens bungalow was built on top of a seam of pure gold nuggets all along.
Wouldn't you pay taxes every year, so N would never be ≥ 1?
What happens after the city buys it?
Also, most municipalities do not have the funds on hand to buy up people's houses just to call their bluff on taxes.
They attempt to sell it at market-rate which, assuming the previous owner intentionally under-valued the house, would earn them money that they can use to continue the program.
What if they have a backlog of inventory that they can't sell at "market rate"? Are the taxpayers just supposed to take a loss because of this brilliant tax assessment scheme?
I assure you, unloading property in NYC purchased below actual market value will not be a huge challenge.
You might be surprised how the gov't threatening to take your house every year affects prices. And the ability to get mortgages. And new construction.
You might be surprised how it doesn't
i guess we're at an imagination stalemate now
> You might be surprised how the gov't threatening to take your house every year affects prices.
Which they won't do if it's assessed appropriately.
See California's Proposition 13 for the alternative.
The idea is that the houses are being bought by the government because they were erroneously valued by the owner under market rate. That presumably gives them room to come down from "market rate" to actual market rate (the rate it sells at on the market).
The only way to end up with a loss is a coordinated attack by owners and potential buyers: to intentionally understate the value, and then to hold off ANYONE attempting to purchase before the market sale price is below the compelled price. So multiple rich people lose their houses in a naked gambit to bankrupt the government. I mean... I guess it could happen? But at that point, it's open class warfare.
conservatorship
> Make someone declare the value of their property. Then the government has the choice of taxing them at the scheduled rate, or buying the property from them, for that cost.
Isn't that what got Guatemala invaded back in the 1950s?
I had a similar memory of hearing this scheme in the context of a Latin American country. Industries were nationalized, and foreign corporate owners were compensated based on the tax assessed value of their businesses.
Sorry all, I wasn't explicit, but I was proposing that this would be on non-primary residences.
So in the end, the government still needs a department that assesses properties to determine if the owner has undervalued it.
This would be a exquisitely horrible way to live.
> Then the government has the choice of taxing them at the scheduled rate, or buying the property from them, for that cost.
Uhh... what? How is this not an insane system?
1. You give an accurate, good faith projection.
2. Government taxes you.
Government buys your house. Weird. You buy a comparable house with the proceeds.3. Repeat.
For the tax authority (and the public) it's a win/win:
1. Property is taxed at correct rate (win)
2. City buys property at low cost (win)
Thats not the scenario I detailed. Read it again.
Your scenario would not happen. It's not one of the "win" cases, as I explained. What would be the point?
The government would only buy your house if you underestimated the value of your property. You wouldn’t be able to buy a comparable house with the proceeds because it got sold for much less than it was worth.
>The government would only buy your house if you underestimated the value of your property.
Nope, that's not in the rules. It's up to their discretion.
It seems like you agree it would be bad for the government to be able to buy your house when you give an accurate assessment. So why not design it out of the rules?
What makes an assessment "accurate"? If there was an objective answer to that question that could be used to adjudicate the rule, then the process wouldn't be needed in the first place.
> It seems like you agree it would be bad for the government to be able to buy your house when you give an accurate assessment.
You're thinking about this wrong (as is the person you were replying to). The whole point of this system is to define "accurate assessment" as the break-even price where you could take or leave being bought out. That's how much the property is actually worth to you. Not some estimate of the aggregate market price. By definition, it's value to you is greater than or equal to the market price because if it's lower, why haven't you sold already? In other words, the idea is not to tax market price, but "market price + consumer surplus".
Note that because everyone's valuation would go up, this should be paired with a reduction in the tax rate.
The option to buy the asset is discretionary. The government can buy it for any reason at any price. Furthermore, many of these assets are not commodities. What is the value of a thing for which only one exists?
Ignore the downvotes -- that is an insane system.