I initially estimated lost real estate tax revenues of $1 billion. When you factor in other lost tax revenues including income tax (federal, state and local), mortgage recording taxes and transfer taxes this estimate increases to $1.8 billion per year. If this amount can be leveraged by four dollars for every one dollar invested, this would create a $9 billion pool of capital that could be made available every year for the construction of affordable and workforce housing.
The issue with respect to rent regulations is whether the current system is the most effective way of creating and maintaining affordable housing in New York City. Given the large sums of money involved, it is worth a hard look.
Monday, June 23, 2008
Wednesday, June 18, 2008
Cost Of NYC Rent Regulations
I have never seen an analysis as to the annual cost of the current rent regulation system in New York City, but by my own estimation the city is losing at least $1 billion a year in lost real estate tax revenues due to apartment rents being kept at a below market level. This $1 billion shortfall would be sufficient to fund the construction of 20,000 units of affordable housing every year.
This estimation is based upon the existence of 1.1 million rent regulated apartment in New York City and the assumptions that each rent regulated unit rents at an average monthly rent of $400 below market (this seems reasonable, but needs to be verified), and that real estate taxes generally are 20% of the gross rents of a building. Based on these figures, the city is foregoing the receipt of $1 billion per year in real estate taxes because of the existence of rent regulations. In essence, the city is spending $1 billion a year to provide rent subsidies to individuals regardless of their need.
The most public example of the ludicrousness of this system is the rent subsidy our current governor is receiving. It has been reported that Governor Patterson lives in a $1200 per month apartment that has a market rent of $2600. Because of the existence of rent regulations, the governor is receiving what in essence amounts to a rent subsidy that costs $3360 per year in lost tax revenues. Do we really believe that our governor needs a rent subsidy that costs taxpayers $3360 per year?
This $1 billion in lost tax revenues represents about 2% of the current annual city budget of $59 billion. In addition, assuming it costs approximately $250,000 to build one unit of affordable housing, $1 billion a year could be used to finance the construction of 20,000 units of affordable housing every year (assuming 80% financing).
This analysis does not even include the cost of operating and implementing the system of rent regulations nor the lost income and capital gains taxes to the City, State, and Federal governments due to the fact that the annual net operating incomes of rent regulated buildings are also artificially depressed due to the existence of rent regulations. If these costs were included, the numbers would be even more compelling.
This estimation is based upon the existence of 1.1 million rent regulated apartment in New York City and the assumptions that each rent regulated unit rents at an average monthly rent of $400 below market (this seems reasonable, but needs to be verified), and that real estate taxes generally are 20% of the gross rents of a building. Based on these figures, the city is foregoing the receipt of $1 billion per year in real estate taxes because of the existence of rent regulations. In essence, the city is spending $1 billion a year to provide rent subsidies to individuals regardless of their need.
The most public example of the ludicrousness of this system is the rent subsidy our current governor is receiving. It has been reported that Governor Patterson lives in a $1200 per month apartment that has a market rent of $2600. Because of the existence of rent regulations, the governor is receiving what in essence amounts to a rent subsidy that costs $3360 per year in lost tax revenues. Do we really believe that our governor needs a rent subsidy that costs taxpayers $3360 per year?
This $1 billion in lost tax revenues represents about 2% of the current annual city budget of $59 billion. In addition, assuming it costs approximately $250,000 to build one unit of affordable housing, $1 billion a year could be used to finance the construction of 20,000 units of affordable housing every year (assuming 80% financing).
This analysis does not even include the cost of operating and implementing the system of rent regulations nor the lost income and capital gains taxes to the City, State, and Federal governments due to the fact that the annual net operating incomes of rent regulated buildings are also artificially depressed due to the existence of rent regulations. If these costs were included, the numbers would be even more compelling.
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