Editor’s Journal

Summer 1992
The Trouble With Tenancy

One of the things that makes New York unusual is the high proportion of its citizens who live in apartments. More than 70 percent of New Yorkers are renters, far more than in any other U.S. city except San Francisco. About half of Chicagoans are renters; in other American cities a majority of people own their own homes.

What effect does this have on the city's character and public policy? Homeowners often oppose apartment developments in their neighborhoods because they regard apartment-dwellers as rootless wanderers with little sense of community. This characterization is too extreme: Homeowners are not always so firmly rooted--the average home mortgage remains in place for only seven years. In New York, moreover, many apartment dwellers defy the stereotype by occupying the same apartment through generations, a practice encouraged by rent regulation. A long-occupied rent-regulated apartment is so cheap that the incentive to stay put is overwhelming.

Still, there is truth to the notion that apartment house living weakens the sense of community responsibility. One reason is that it's difficult to determine who is to blame for a breach of the rules in an apartment house. Two tenants with dogs, for example, might become embroiled in an argument over whose pet made a nuisance in the hall. Likewise, if someone fails to sort his garbage properly for recycling, the sanitation crew has no way of identifying the guilty party.

The city's way of dealing with such problems has often been to hold the building owner responsible for the collective actions of his tenants. An article elsewhere in this issue details one such example, with disturbing implications: the water-metering system (see "How to Keep New York's Water Running," page 47). It is impractical to meter each apartment separately, so the city is installing building-wide meters in apartment houses. Because tenants do not directly pay for the water they use, they tend to consider water a free good and use it more extravagantly than homeowners who know they will have to pay the bill. As a result, New York uses more water per capita than the average city--though other cities have more lawns to water and cars to wash.

The biggest difference between homeowners and apartment dwellers concerns property taxes. The real property tax is the city's biggest money-raiser, accounting for 48 percent of all municipal taxes. A homeowner (or condominium dweller) receives a bill four times a year for the property taxes on his house and land. But tenants in apartment houses are never confronted with a bill for real property taxes. They pay income and sales taxes, of course, but these do not seem as painful since they are deducted from wages or added to the cost of a purchase.

The real property tax, in contrast, is all pain. A homeowner is forced to go into his savings to pay the property tax, or else it is taken from him, month by month, as the owner of his mortgage escrows prospective tax payments. Because they so directly feel the cost of government, homeowners become acutely sensitive to what the city does with their money. Homeowners' associations, thus, are among the most powerful advocates of lower municipal expenditures.

This is true in New York as well as in other cities. But because homeowners are a minority of the city's population, they lack much of the clout of their counterparts elsewhere. Landlords, who pay property taxes at a much higher rate than homeowners, are a relatively small group of voters, and thus have limited political power. This is an important reason why New York spends a lot more money per capita--no matter how the comparisons are made--than any other major U.S. city.

What could be done to change this state of affairs, to make New Yorkers more aware of the price they pay for an expansive city government? One solution would be to hold tenants rather than landlords responsible for the tax on rental property. Some tenant organizations have advocated this so their constituents could deduct the costs from their income taxes. But the city would be foolish to follow this course because it would make cheating on property taxes much easier. If a property owner does not pay his taxes, it is easy for the city to seize the property. Many tenants have no worthwhile assets to secure their payments; even if they do, it is much easier for the city to take control of property that is fixed and legally defined.

An encouraging sign is that many apartments are being converted to cooperat1ves. In a co-op, tenants pay their pro-rated share of property taxes, and are entitled to deduct it from their income taxes. Thus, they are acutely aware of the costs of the real property tax. In time these former tenants will probably join with homeowners in attacking city spending, deficits, and high taxes. It cannot happen too soon: Until a majority of New Yorkers start thinking like homeowners about the impact of overspending on their own wallets, New York City will follow its familiar course--spend more, worry later.

—RS