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Building Vacant Housing?

April 24th, 2018
housing  [html]
I've often advocated allowing people to build more housing, under a view that the important thing is increasing the total supply of units because the main thing driving up rents is more people than places. One of the arguments friends have given against allowing luxury construction has been that many of these are being purchased as investment properties and then left vacant. As vacant units, they're not helping match supply to demand, and so are not contributing to solving the problem.

One of these friends recently posted an op-ed arguing for a transfer tax on very expensive units. While I'd rather see a graduated property tax, this is still something I think would be better than the status quo. But one of the arguments they give for it is pretty bad:

Most of these apartments aren't homes, but wealth storage units for what Suisse Credit describes as the "ultra-high net worth" class, those with $40 million or more. For them, these Boston properties are just one more option to diversify their holdings—like stocks, bonds, gold, or high-end art.

Think of them as elegant piggy banks. They're part of a global hidden wealth infrastructure, a mechanism to hide wealth and mask ownership to avoid taxation, legalities, and oversight.

A high percentage of these housing units will sit empty or rarely occupied. In the Millennium Tower, for example, only 25 percent of units claim Boston's residential property exemption, declaring the property their principal residence.

Their citation is Is anyone home at Millennium Tower? City records indicate few condo owners take residential exemption, which is about a single new building:

The article has more details:

Under Boston tax rules, people who own and occupy their property as their principal residence as of January 1, 2017, are entitled to a residential exemption of $2,538 on their property taxes in fiscal 2018. At Millennium Tower, 403 of the 442 units were purchased prior to 2017, but only 93, or 23 percent, of the owners took advantage of the exemption. The rest, 77 percent, did not. (Units purchased in 2017 will become eligible for the exemption in 2019.)

Ron Rakow, the city's assessor, said the residential exemption, particularly at an ultra-luxury building such as Millennium Tower, is not a reliable indicator of whether someone is living full-time at their residence. Some of the residents probably couldn't be bothered applying for a $2,538 exemption. Grayken's property tax bill is nearly $357,000, while Dell's is nearly $108,000. Rakow said other owners have placed their units in blind trusts and limited liability companies that often preclude applying for an exemption.

In addition to the caveats given in the article, the main problem with using residential exemption numbers to gauge occupancy is that it doesn't consider rentals. If you own a unit and rent it out, you can't claim the residential exemption. So, for example, Somerville housing is only 34% owner occupied, and I'd expect residential exemption numbers to be lower since it isn't automatic (you have to apply, submit documentation, etc). I wouldn't conclude, however, that Somerville is mostly vacant.

We can look for listings in Millennium Tower to see if people are actually renting, and I do see some: here's a listing of 12 units currently available for rent (units 1404, 1514, 1806, 1902, 1904, 1914, 2005, 2010, 2605, 2807, 2907, and 4804). There are 442 units total in the building, but this doesn't tell us what fraction of the units are rented, since currently rented units won't be listed.

I do think it matters whether units tend to be vacant, since from a perspective of addressing the housing shortage it's only helpful to build places where people will live. But saying the occupancy rate is 25%, ignoring all the cases where people live in units without qualifying for the residential exemption is very sloppy.

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