Study says property tax relief is obstacle to first-time buyers

Long Islanders will once again receive rebates from the state School Tax Relief program this fall, but if you ask the authors of a recent research paper, those rebates are making it harder for first-time buyers to afford a home.

Property tax relief programs around the country, such as STAR in New York, lower existing owners’ costs, making them less willing to give up those benefits and sell their homes, according to research that will be published in a forthcoming issue of National Tax Journal. 

The paper analyzed how property tax relief affects housing affordability. 

The findings show why policymakers should carefully consider the ramifications when creating or continuing property tax relief programs, said Cameron LaPoint, a co-author of the paper and a finance professor at Yale School of Management.

“The clear takeaway from our paper is that these local property tax relief measures tend to benefit older existing homeowners at the expense of younger and prospective homeowners that might still be renting and trying to get on the housing ladder,” LaPoint told Newsday.

The paper delves into property tax programs around the country, and while it doesn't examine the program directly, it is relevant to STAR in New York.

New York homeowners receive STAR funds through either a tax credit or an exemption. The credit is sent by check or direct deposit, while homeowners who enrolled before 2015 may get an exemption to reduce their school tax bill, according to the state Department of Taxation and Finance. 

Long Islanders’ STAR credit or exemption savings can range from a few dollars to a few thousand dollars, depending on a taxpayer’s school district, age and income. Seniors who meet income requirements can qualify for an enhanced benefit. Other exemptions are available for veterans and people with disabilities.

New York State taxpayers will receive $2.3 billion from the STAR program this year, including $736 million that will be sent to about 596,000 Long Island households, Gov. Kathy Hochul announced last month. That's an average of $1,236 per household.

Local policy experts told Newsday that while tax relief programs may increase home prices, there are other ways lawmakers could look to make housing more accessible without targeting a popular program, which would be a political non-starter.

Long Islanders pay some of the highest property taxes in the country. Nassau and Suffolk were among 15 U.S. counties where the median property tax payment was more than $10,000, according to an analysis of Census data by the Tax Foundation, a think tank in Washington, D.C.

Thirteen of those counties were in New York or New Jersey and the others were Marin County, California, and Falls Church, Virginia.

When it comes to property tax relief, it all depends on one’s perspective, said Lawrence Levy, executive dean of the National Center for Suburban Studies at Hofstra University.

According to the paper, homeowners, who make up the majority of Long Island households, would like to see lower tax bills and the potential boost to their home value that lower taxes create, he said.

Prospective homebuyers, who make up a much smaller portion of the population, want homes at affordable prices. Of course, they could qualify for STAR after they purchase.

Regardless, lawmakers are unlikely to make any changes to STAR, Levy said.

“There is no chance that it would be anything but increased because it has now become something that people count on,” he said.

Richard Murdocco, an adjunct professor at Stony Brook University who teaches courses on planning and economic development, said there is room for criticism of rebates as “papering over” the problem of rising tax bills without addressing the drivers of cost. But there are more significant obstacles hurting first-time homebuyers, such as inadequate housing options.

“If we reach the point where we’re that worried about giving seniors and veterans a break in their property taxes, then we’re doing something collectively wrong,” Murdocco said. “There are much bigger issues and drivers of cost than that, [which are] halting the transition of property from one generation to another.” 

E.J. McMahon, an adjunct fellow at the Manhattan Institute for Policy Research who has written about New York state tax policy, agreed with the authors’ finding that property tax relief programs give owners a reason to stay in their homes.

“There’s no question that [the] Enhanced STAR tax break effectively gives many seniors an added financial incentive to stay put in oversized empty nests,” McMahon said.

But he noted other states’ programs have a larger effect on affordability because New Yorkers can reapply for STAR if they move to a new primary residence.

California’s Proposition 13, for example, gives owners a much larger incentive to stay in their homes, he said. In that program, buyers lock in their property tax assessment at the time of purchase and there are restrictions on annual tax increases.

On Long Island, McMahon said, housing affordability is “primarily a supply-and-demand issue to which STAR is a secondary contributor.”

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.