by Barrett Seaman –
Francis and Erika O’Shea moved to Irvington four years ago, buying their house on Home Place off Main Street for its charm, its proximity to Metro North and for Irvington’s schools, where they planned to send their two children. Their real estate agent, said Francis, “was very straight with us in saying that a reassessment was coming.” When it did come in 2016, however, and their property tax bill shot from $13,000 to $19,000, it was unsettling. “They did tell us it would be more,” said Erika, “but they didn’t tell us it would be that much more.”
Audrey Nguyen Bryant and her husband Clay, a management consultant, closed on their house late last year and are now happily ensconced with their eight-week-old son Graham on Irvington’s South Ferris Street. The property tax bill on their house had already gone up—a big factor in the previous owners’ decision to put it on the market. But then their taxes went up again—from around $18,000 to $22,000, “higher than we expected,” said Audrey, who works in the fashion industry in the city.
Lara Skinner and her partner had a better experience buying in Tarrytown, where the reassessment had a more modest impact than it did in Irvington and elsewhere. After years of renting New York apartments, they decided to buy and began searching their way northward, eventually discovering the rivertowns. “We were particularly attracted to Tarrytown because you can walk to the grocery store, great restaurants, Rockefeller State Park and other key necessities,” she said. “High annual property taxes were a concern for us, but we also appreciate the important amenities that these taxes support—good schools, public transit, paths along the river and more.”
For the O’Sheas, the Bryants, Ms. Skinner and many others moving to the rivertowns, high property taxes are—and long have been—often seen as a trade-off—particularly for those with kids. Francis O’Shea knew that sending his children to the New York City private school he had attended would cost nearly $50,000-a-year per child. So, a good, free public school seemed worth absorbing a high tax bill.
Their stories and their route to the rivertowns are familiar to local real estate agents. Coldwell Banker agent Dan Bucci of Tarrytown dubbed the rivertowns in general “Brooklyn North” and uses it as a marketing tool.
But lately, buyers have been taking second and third looks as valuations and property taxes climb and as federal property tax deductibility all but disappears.
New York State law ties property taxes to the real market value of a home—roughly three percent-plus per $1,000, which would put yearly taxes on a million-dollar house somewhere north of $30,000. For decades, few area residents quibbled with that, since the last formal assessment was in the mid-1950s, keeping valuations low. Then in 2016, the Town of Greenburgh executed a full reassessment that hit villages like Irvington, Hastings and Dobbs Ferry hardest. In some cases, homeowners saw their tax bills more than double. Thousands “grieved” their assessments, challenging the new values and pleading for relief. Only a fraction were successful, but the town did adopt a three-year graduated payment system for those whose taxes had gone up by more than 25%.
As of this year, that step-up is over, and everyone is paying full freight. Many long-time residents have been driven to sell. Some were empty nesters that would likely have downsized anyway—just not so soon. Others, including many in downtown neighborhoods that traditionally housed working-class families, sold not because they wanted to but because they couldn’t afford to stay. As long as there were young families willing to pay top dollar, however, they were able to escape.
That formula now shows signs of strain. Many homeowners are dismayed by the new federal tax law that limits deductions of state and local taxes (SALT) to the first $10,000, a figure topped by four out of five Westchester homeowners. Separately, twice since the original reassessment, the town has notified homeowners that, because the gaps between selling prices and assessed values were continuing to widen in various micro-markets, assessments, hence taxes, were being adjusted—yet again. For many, it felt like an aftershock in a market still jittery from the original reassessment earthquake.
Then in mid-July, Bloomberg.com ran a story reporting that purchases in Westchester, already home of the highest property taxes in the nation, had “plunged” 18 percent, citing the limit on SALT deductions as a proximate cause. To Coldwell Banker’s president for Connecticut and Westchester, Joe Valvano, ”it was a perfect storm.”
Extracting 2018 first half numbers for the rivertowns and adjacent markets, Valvano observed that while the overall downward trend is clear, the data varies according to specific markets and price points. In Greenburgh, Ardsley, Dobbs Ferry, Hastings and Irvington combined, houses selling at between $1 and $2 million dropped from 160 in 2017 to 110 this year, and their dollar volume dropped 35%. Sales in the $2-to-$4 million range fell from 20 down to six. In those same markets plus Tarrytown and Pocantico Hills, however, houses selling for under a million rose modestly.
“The market is very location-specific,” said Andrea Martone of Houlihan Lawrence. At one point last month, the Irvington school district had 62 houses for sale, while larger neighboring Tarrytown, where prices were lower, had only 14.
Sales vary according to age and style as well. Irvington in particular has a large stock of old homes—well-built and gracefully designed for their era but often not conducive to the open architecture and state-of-the-art kitchen/family room designs that attract many young families. “Buyers in the $1-to-$2 million range are not in the market for a DIY (Do It Yourself) project,” said Compass broker and attorney Michael Bryant, who also represents owners filing grievances.
Most everyone in the business agrees that older homes worth $4 million or more—even ones with historic value—simply aren’t selling. So far unable to find a buyer for Irvington’s 14,000 sq. ft. Villa Nuits, built in 1852 and assessed at $8.9 million, its owner feels that the only way he can offset his $224,000-a-year property tax bill is to rent his mansion out through Airbnb and VRBO, and to filmmakers such as Netflix.
Pause, Correction or Worse?
Most area brokers are uncertain whether today’s flat markets are just a pause in what has been a long upward climb, a Wall Street-like “correction” or a sign of permanent trouble. Taxes are now at “the forefront of buyers’ thinking,” said Francie Malina, a Compass realtor. Adds Hillary Levy, a Coldwell broker, “They understand that if a house (the house they love) is assessed at $1 million and they pay $1.6 million, their taxes will rise by about $18,000.” That kind of sobering calculation is dampening the urgency that only recently sparked bidding wars.
“What we have to realize,” said an agent who wished not to be identified, “is that buyers have choices. They could look in New Jersey, where prices and taxes are lower, or in Connecticut, where prices may be higher but taxes are a lot lower.”
Lynn Leahey, who sold her home in the Barney Park section of Irvington, wanting to return to her childhood home in New Jersey, was at least partly motivated by the reassessment. “When I moved in, my taxes were around $21,000; when I left, they were around $25,000. I’m now paying $12,000 (in New Jersey). True, the recycling is collected only every other week instead of each week, but services, schools, are all just as good.”
How to Fix the Problem?
When the SALT deduction was capped at $10,000, New York Governor Andrew Cuomo, along with several other Democrat governors, charged the Trump Administration with political discrimination. His first proposed solution was to change state law to allow property taxes to be treated as a charitable deduction. That would require each taxing entity in the state to approve it, and some are considering doing so. But most officials and tax lawyers have concluded that the IRS is unlikely to approve such a deduction, leaving those who try to at risk of penalties.
Cuomo and other governors are given better (though not great) odds of winning a lawsuit claiming that the SALT provision disproportionately penalizes their residents and violates states’ rights. But area realtors and tax experts point out that the SALT provision affects only a portion of Westchester taxpayers, since owners of homes over $1 million in value are likely to be in income brackets subject to the Alternative Minimum Tax (AMT) that obviates the property tax deduction.
On the village level, Irvington’s recent Comprehensive Plan recommended steps that would loosen restrictions on home use. The board is adopting legislation that allows short-term rentals, Airbnbs and home offices as ways to offset high property taxes. Says Mayor Brian Smith: “Any reasonable suggestion we’re willing to pursue.”
Dropping one of the four layers of government to which Westchesterites pay taxes has long had appeal. Some think town government services could be absorbed either by the county or the villages. Naturally, Town Supervisor Paul Feiner believes it’s the county that needs to go and cites New England town governments as a model.
Many single-family homeowners have long resented the beneficial tax rates afforded condominium and co-op owners. A number of municipalities upstate have opted to eliminate the distinction, but not Greenburgh, where Supervisor Feiner fears that leveling tax rates—not just for condo and co-ops but for commercial properties, which he says would be required—would drive many businesses out of town. This spring, residents of The Landing, a community of 103 attached houses near the Hudson, took matters into their own hands by registering with the county as a condo, looking to reduce their assessed values by anywhere from 25% to 50%. But the town has so far chosen to ignore that, a de facto rejection that residents are currently challenging.
There are other, more arcane schemes to mitigate the effects of the SALT provision: using broader payroll tax withholding, or shifting the counties’ share of Medicaid costs entirely to the state, for example. But the solution that is likely to gain more consideration over the long haul is finding ways to reduce the cost of local governments, services and schools—the basis for property taxes in the first place.
Westchester County Executive George Latimer is championing the Shared Services initiative that was launched by the state last year but only modestly pursued by his Republican predecessor, Rob Astorino. The program encourages governmental entities at every level to seek economies of scale through sharing services or manpower, hence costs. As an incentive the state is offering a dollar-for-dollar match for documented savings. Mt. Kisco, for example, reached an agreement with the county to take on policing duties for the village, saving $2.4 million. Smaller savings can be achieved by sharing IT and other administrative costs.
The big nut, of course, is schools, which eat up roughly two-thirds of Westchester’s property tax revenue. More residents, especially since taxes have risen, are questioning whether each of the rivertowns can afford its own autonomous school system. The biggest obstacle has traditionally been a reluctance to give up local identity—school spirit, the Sleepy Hollow Horsemen, the Dobbs Ferry Eagles—and all the other emotional ties. To date, local identity has held sway, but the growing pressure of property taxes may soon bring that debate to the forefront.
Brokers, buyers and sellers are all quick to say that the intrinsic benefits of living in the rivertowns are unchanged. Schools are good; the villages are charming and intimate, and the river is utterly captivating. But affordability is in that mix as well and somehow, at some point, must be given its due.
Related story (video interview) – Indy Talks: Real Estate Taxes