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Here we are in Manhattan's Turtle Bay, three blocks north of the United Nations complex.
Walking up First Avenue, one sees eight street addresses, from 946 through 962, excluding 958.
The assessment rolls, however, show only four. This illustrates the difference between "tax
lots" (the unit as it appears on the tax rolls) and "building lots" (the actual structures
enclosed within their walls). The aerial photo clearly shows eight buildings on the block;
identical tenements, solidly walled apart, are a normal urban feature (it also shows the
market-clearing level of development in this neighborhood).
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Since parcels 946-952 are owned by a single company, they should be considered economically as one parcel. We can see that their upper floors are almost, if not completely vacant. We can
run a few numbers here and get a sense of the economics of this space. Ground floor rents in
Manhattan currently average $149 per square foot. This is a pricier-than-average area, but,
some of the leases might not be new -- so let's assume a figure of $120 PSF for the
approximately 4,500 square feet of usable ground floor space here. That would bring in a gross
rent of $540,000, which more than covers the three parcels' annual tax bill of $199,195. No
need to bother even trying to rent out those residential upper floors!
Our land dimensions are 100 ft on 1st Ave. by 60 ft in depth (and an additional 20 ft in depth
behind 952). Zoning allows ten stories in this area (or more, if a developer were to purchase
air rights from 962 next door). But let's assume ten stories. This means that zoning allows
them to build a rentable square footage of about 45K, of which ten per cent is at ground
level. Residential rents here are high and rising; let's estimate a conservative $40 PSF. So
they could add a gross residential rent of $1,620,000 to their commercial rent of $540,000,
for an annual rental income of $2,160,000.
What about the assessments?
For Class 2 parcels such as these, the city says it derives its estimate of market value from the income they provide the owner. One would think, then, that these underused buildings, in poor repair, would be listed with low values, but... in this case the assessment figures are typically bizarre: the three buildings on parcels 946-952, taken together, are purportedly worth $6.1 million, while the land beneath them is said to be worth a mere $2.4 million. The annual rental figure that we come up with below, capitalized at 7%, would yield a land-only price of $6.8 million, which is certainly very low on today's market.
Conventional assessments are based on some estimation of a parcel's market price -- a figure which, as we have been exploring, cities often miss by spectacular amounts. Here, however, we're looking at an assessment based on the land's rental value -- that value which, according to Georgist economic theory, belongs to the community. |
Another thing worth pointing out is that our value estimates are particularly conservative in this example -- because as we speak, the Second Avenue Subway is being built, just one block
away.
For the privilege of holding on to this really rather astounding potential, the city is
currently charging them about thirty bucks per square foot of land area, or $3.79 per square
foot of rentable space under current zoning. Clearly, that's not having the desired effect
(except to the owner, who is pretty much loving it).
What should they be charged? Well, we don't want to penalize anyone for building the ten-story
mixed-use building that is so clearly in demand. That building would cost about $12 million,
or $266 per square foot1.
If we took a 20-year mortgage at 6% interest2, we'd have to pay about $1,030,000 per year to
service the mortgage. New York City has a high repair/maintenance cost, estimated at about
$3.80 PSF3, which would cost this building about $172,000 per year. Perhaps the owner could
yield 4% ($480,000) for her management of the building (and associated costs). After we've paid the mortgage, and the costs of maintenance and management, what's left over is the rental income attributable to the land itself. Using that method, our rough calculation of this site's annual land rent is $478,000.
These calculations make many assumptions, it is true -- but every figure cited is deliberately understated. We are suggesting that New York City collect the full
rental value of its land and levy no other taxes. What would that mean on this
site? That the owner would realize a 4% annual "wage of superintendence" on a $12 million
dollar building, while contributing nearly half a million dollars per year toward public goods
and services. And the city would levy no other taxes -- on anything!
1Via the construction cost calculator at www.meanscostworks.com
2The interest figure seems a tad low, but we deduct the value of inflation from both the
mortgage interest and the overall value of the building. Mortgage rate calculated via
www.bankrate.com
3Whitestone Building Maintenance and Repair Cost Reference, 2006-2007, quoted at
www.allbusiness.com
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