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Councilor wants to look at fees on vacant storefronts and apartments to help curb Boston's 'high-end blight'
By adamg on Mon, 04/02/2018 - 8:16pm
City Councilor Matt O'Malley (Jamaica Plain, West Roxbury) has had enough of storefronts and apartments that go empty - sometimes for years - in even the swankiest of neighborhoods and wants to begin looking at ways to prod landlords to rent the spaces out that could include "vacancy fees."
On Wednesday, O'Malley will ask fellow councilors to allow him to explore the issue in at least one hearing.
Storefronts left vacant for multiple years suggest a market failure, empty residential units remove housing that could otherwise provide homes, and filling vacant space improves the vibrancy and livelihood of our city while placing downward pressure on rents
In his formal hearing request, O'Malley says he would start with data collection on vacant storefronts and residential units in Boston neighborhoods.
But he notes that while Boston has taken a number of carrot-like steps to make it easier to fill storefronts and build more housing - from zoning changes to outright subsidies - it has yet to explore stick-like "disincentives such as fees levied on long-term vacant properties," something he said other major cities, from Vancouver to Paris have begun looking at.
The council's regular meeting begins at noon in its fifth-floor chambers in City Hall.
Neighborhoods:
Topics:
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 O'Malley's complete hearing request | 65.31 KB |
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Comments
I really like this idea!
I really like this idea!
It's crazy that a business can deduct un-rented space as a tax deduction, allowing for places in the highest traffic areas of the city, like Cactus Club & parts of Newbury Street.
A vacancy fee would be a great countermeasure to ensure they don't sit on vacant properties, hoping for constantly higher prices.
If by take unrented space as
If by take unrented space as a tax deduction, you mean that they aren't taxed on money they don't earn, sure. It's like arguing you get a tax deduction for not being CEO of Amazon.
https://www.irs.gov/taxtopics/tc414
What really happens??
What are the actual tax rules?? I had heard differently - the property value is lower for spaces that are unoccupied, so you get a lower property tax bill for that empty office/store front. I had never heard of it as an actual tax break/refund.
Anyone with better commercial knowledge care to chime in?
So
Why can't the city just value property based on assumed occupancy? Why do they need a vacancy fee?
Additional costs to the city
Vacant buildings require more attention and create more responses for police and fire, and raise risks in the neighborhoods that surround them.
Vacant Commercial Property -- how to write it off
You write off the full amount of the lost rent as a passive loss against your passive gain from other rental properties.
Can you verify this? I've
Can you verify this? I've actually been trying to research this very topic, and have been told the opposite by an accountant. I was told that a building owner/developer can NOT deduct the lost rent. That's not an allowed deduction in Massachusetts.
But I can't seem to find anything in the MA code one way or the other.
That's a crock
You're just making stuff up here. You can't write off revenue you didn't get.
Ok, actually you can. You can also claim your pets as dependents and deduct everything you spent on hookers and blow as a business expense, but just hope you don't get audited.
No. Just no.
You can't write off something that doesn't exist. OK, passive gain is something like rental income if you are not a real estate professional. Passive losses can be used against passive gains, generally up to $25k a year.
Here's the problem. Passive losses are actual losses, generally. If you have tax, insurance, water, sewer, maintenance, etc, those are real actual out of pocket expenses. If you have other property tossing off income, ya, you can take it as a loss. But, wouldn't you be better off getting rental income? Here's how a Schedule E works: You total up your expenses. Then you total up your rent/royalties. If there's no rent, it equals zero. If you could get say $1k a month and you ain't, you cannot deduct $12k from the income. It just doesn't work that way.
As far as depreciation, ya, it looks good (over 27 1/2 yrs) but it gets added to the adjusted basis of the property when you sell, so they get you then.
Maybe the vacancies are caused by more deeply underlying problems.
Vacancies produce other problems as well.
If you have no rental income from a property, it can be assumed it's vacant. If it's residential and totally vacant, better read your insurance policy. If it's totally vacant for more than a month, the possibility exists that, if you suffer a loss, the insurance company will say in complicated legalese, "Screw you".
Vacancy insurance can, for sound reasons, go for 2-3 times what occupancy insurance goes for.
As another poster pointed out
This is false on so many levels.
For those in doubt....
"I have said it thrice:
What I tell you three times is true."
(from Hunting of the Snark)
As another poster pointed out
This is false on so many levels.
As another poster pointed out
This is false on so many levels.
Something really needs to be
Something really needs to be done about the old Cactus Club location. While that building was never the most pedestrian friendly by any means, a lot of work has been on it over the years, including the horrendous door cutting that now scars the facade to the access ramp, but now the landlord can demand the rents they imagine being paid across the street in all the new Hynes/Pru development and folks just can't justify that kind of money when the upscale business has essentially shifted to the Seaport. Even so, Cactus was on its last legs as a viable business for that area and wasn't going to last very long either.
This is a fantastic concept!
This is a fantastic concept! But I do wonder what the fees would go to, and really hope they would be put towards programs that encourage affordable housing to help tackle the other end of the problem (too few empty apartments in the range that the disappearing middle class can afford). Maybe somehow they can lower the required income to be eligible for affordable housing programs: most BPDA programs have a minimum income of $50,700 for a single person, and I'm guessing that there are a lot of people who don't make quite that much but make too much for low-income assistance (or I'm just being selfish).
I would actually hope the
I would actually hope the fees would stay in the commercial-property realm, perhaps a grant program to help first time business owners or nonprofits supplement costs needed to open storefronts, etc. There's plenty of cool non-retail use for property, especially with amazon killing retail in general, but nonprofit art for kids and makerspaces and community coworking spaces have to compete with bank of america and yet more chain restaurants for rent
Ask and ye shall receive
My friend Kelly Smith is opening Minni, a community creative space focused on early education, hosting art and design classes, workshops and events -- basically exactly what you're looking for!
It'll be in the South End. I'm not sure if she benefited from any tax relief.
this is great!
thank you for spreading the word :)
it'd be awesome if we could get spots like this in every neighborhood
What a moronic comment
Filling vacant space places downward pressure on rents.
The colleges these people graduated from should revoke their degrees. Obviously they failed freshman economics.
Moron.
Moron.
Supply & demand doesn't work efficiently when there is an artificial element--in this case the ability to take a tax deduction on the vacant unit. Seems like you couldn't follow high school economics.
Nothing about this proposal forces a landlord to rent their vacant unit, it just tries to remedy a situation that negatively impacts residents in high & soon-to-be high demand areas by making the owner pay a price for holding their place vacant indefinitely.
Yep, moron
If you want a tax deduction, first you need income to deduct from. Now, of course that is highly dependent on how you own the property, other income etc.
These types of vacancies are relatively rare and usually have good explanations for being vacant.
The old Shreves building has all their approvals to redevelop, but there's minimal market for the planned super high end offices contemplated. They could do more mid market if the building were higher, but shadow laws preclude that. The cactus club building, last I heard, couldn't figure out what to do with the building. Apparently odd space and they want to make it bigger, which they can't becsuse it's in the historic district. Appeals for an exception fell on deaf ears..
The exception to this are the decrepit buildings on the first block of Boylston. But those would cost more to make rentable than the rent would be worth, so they are land banked.
Be careful what you wish for. Laws like this bring their own set of problems.
And it's still moronic to argue that reducing vacancies lowers rents.
Many of these vacant
Many of these vacant buildings and storefronts belong to landlords who own many, many properties. They have plenty of income from their properties and don't mind having a few vacant ones they can claim a loss on that offsets the income from the other properties.
what they can or can't afford
what they can or can't afford is none of anyone's business. Its their property, they can do whatever they want with it.
Once more, with an example.
Sue has 10 properties. She rents them out at $1,000 each. They also cost her $500 each in property tax, heat, water, maintenance, etc.
One is vacant.
Sue receives $9,000 in rent. and has $5,000 in expenses. She has earned $4,000 in income, on which she pays income taxes Let's say her tax rate is 25%, which means she pays $1,000 in income tax, leaving $3,000 in her pocket. If she had rented all 10 properties she would have had $5,000 in income, on which she would have paid $1,250 in taxes, leaving $3,750 in her pocket. She is $750 better off renting that tenth property than she is leaving it vacant.
. There is no "deducting," or "writing off" the missing income from the unit that is vacant -- it's just income she never received.
From a tax perspective, Sue is *never* better off leaving a property vacant than she would be renting it out. Leaving a property vacant always costs her real money out of her pocket.
The reason landlords hold property vacant is because they're hoping for a higher rent than the market currently supports, or because they're contemplating selling the property and thinking it will be easier to sell vacant, or, because somebody died and the property has been inherited by 27 cousins living all across the country, none of whom have enough stake in the property to really pay attention.
You're both right!
Short-term, this proposal would probably lower rents as landlords scramble to fill vacancies with whatever they can - a fire-sale effect. Medium- to long-term, fewer vacancies means rents gradually increase.
At the risk of sounding moronic
So I never took econ. It sounds like a supply and demand thing - apartments removed from the rental pool reduce supply and thus increase demand, putting upward pressure on rents. Wouldn't the opposite be true?
Sort of Correct
Basic supply and demand says that if demand (people who want to rent) stays constant, then reducing supply (of rental space) will lead to increased prices. if you increased supply, the opposite should happen.
Increase rent?
I don't understand? Can you explain how filling vacant space places increases rent using a real life example? (not joking, I just don't understand when there are so many empty store fronts owned by the wealthy)
Rozzie Sq
Has the ups and downs of many downtown squares. As a trustee of a group there renting space in the past, rest assured, you always have more negotiating power when there are 2-3 vacancies in the square as opposed to when there are 7-8 vacancies.
Shout out to the BMRC
for being a good and non-rapacious landlord. You have the lowest turnover by far compared to say your neighbors on Birch St.
Landlords generally end up
Landlords generally end up with vacant spaces because they are holding out for a tenant who will pay higher rents.
Commercial spaces often have leases at a minimum of 3 years, but often 5-10 years. Leaving a space empty for a year to find that tenant with an established business adding a new branch who will enter into a 10 year lease at a higher rent rather than the guy with a new business looking for a lower rent for 3 years.
All these people talking about tax deductions are full of nonsense. For the example of the Cactus Club, Back Bay is a premium region. The space can collect premium rents, it just may take years to find a tenant able to fill it.
Self identification
Very helpful.
How about this then - a big FEE on vacancies of greater than 3 months due to the added burden they place on police, fire, EMS, etc.
Rent the spaces to who? For
Rent the spaces to who? For residential use? Then that means all the owner's equally rich lawyers have to amend all the Zoning Use Provisions in the leases!!! Awwwwww.
Yes Please
I agree, landlords should be financially punished for keeping a storefront empty for years...although I bet this would result in more storefront churches which are oversaturating the market in many of the lower income neighborhoods and creating havock with parking.
Good. There's a need for
Good. There's a need for more of the Word in our lives these days.
Which one?
I'm partial to sesquipedalian, but chuckwalla is fun to say, too.
Syzygy
is the superbest® word
Zymurgy
More zymurgy, less Word.
Zymurgy
Word.
No need to punish anyone
They should simply be on the hook for the added costs that vacant buildings add to the city budget.
Except the primary damage
Except the primary damage caused by empty storefronts is not to the city budget. The damage is to the vitality and health of the mainstreet/neighborhood surrounding it.
It is worth punishing (incentivizing) landlords to keep those storefronts occupied. The city can induce them to lower rent quickly to fill the unoccupied space, instead of speculating and waiting for a high-rent tenant.
Storefront churches
I live in a downtown (not Boston, but near) over-saturated with storefront churches, however, many of the congregations would prefer to be in an actual church building with a parking lot. They just can't find one.
Landlords love churches because they can pay higher rents (pooling resources) and are easy long-term tenants. Compare that with start-up mom and pop storefronts that often fail.
Small shops can't afford the high rents anymore. You can't launch a business that way. Not even in my relatively cheaper satellite city of Boston, let alone Newbury St.
So we have churches in storefronts, on upper floors, in basements, next to other churches and behind churches. Parking on Sundays is next to impossible and small businesses can't get in.
You can't - and shouldn't - restrict churches, but what to do? A smart landlord would take lower rents now for financial gain later and encourage more mom and pop shops, more foot traffic on days other than Sundays and holidays, etc.
As for condos and apartments above churches - they'd just like to bring up groceries on a Sunday without cars double parked in front...one such building actually brought the idea to the city of a residential loading zone. Didn't happen, but we're desperate.
Not to mention that they are
Not to mention that they are leeches who pay no property taxes.
Are you referring to the
Are you referring to the mosque on Malcolm x or St patricks over on magazine St? Or are you referring to both?
Wow
This is the dumbest idea I have ever heard of. If I owned commercial space I would just set up another company to rent it from me for whatever i wanted and move right along. The notion that landlords are sitting on open space while commercial tenants clamour for it is nonsense. We are in the death of retail. In high rent areas you will just get more banks or some other unwanted silliness and in low end places you will get either nothing and people will stop investing in their commercial property due to the tax or they will rent it to businesses that you probably don’t really want just to avoid the tax. As for residential I have yet to see any proof of units purposely held vacant. They are either vacant because they are second homes or corporate housing or they are being used as short term rentals.
The old Bella Luna space in
The old Bella Luna space in Matt O’Malley’s district is being held purposely vacant and has been for years. I have good reason to believe this specific property is the motivation for this proposal but I’m sure it’s not the only one in the city.
O’Malley’s right. This is a
O’Malley’s right. This is a best practice in a lot of cities. Too many commervial landlords will eat the vacancy for tax purposes and don’t care if it causes neighborhood blight since they usually don’t live there. You can see it across the city.
Which cities?
Where is this being done now?
Easy enough to find
NYC and SFO are considering this, too
Cities with such taxes:
Vancouver, BC (empty homes)
Washington DC
Pittsburgh
Hartford
http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2017/0...
Interesting but did you read your article?
Almost all of these cities are addressing the issues of blighted areas, not places like Newbury St. They are trying to get properties improved or rehabbed or vacant lots built, not charging landlords on a commercially viable street.
Hartford:
"Downtown Hartford, Connecticut, has some lovely green space, Bushnell Park, at its center. But within a block or two are more than a dozen undeveloped lots, some of which are used for parking, while others sit empty. The City Council would like to levy higher property taxes on the lots as a way to encourage development."
Washington has mixed results:
"While the development boom in Washington has resulted in some of the property being redeveloped and put on the market, some property owners have chosen to simply pay the tax, according to David Umansky, spokesman for the office of the chief financial officer. The District collected nearly $9.4 million in new taxes on the vacant property in fiscal 2016, he said. He did not have a figure for how much property has been upgraded."
Pittsburgh doesn't really do this:
"Pittsburgh Finance Director Paul Leger said the city abandoned the comprehensive two-tier tax in 1981 because it had achieved its purpose of driving downtown building development and because it could be challenged in court as possibly violating a state constitutional requirement that taxation should be uniform.
Chris Sandvig, director of policy at the Pittsburgh Community Reinvestment Group, a nonprofit that focuses on affordable housing, said a vacant property tax is not necessarily the best way to solve housing problems in his city, where there are about 10,000 vacant or abandoned parcels. Many owners simply don’t pay their taxes and the city seizes the property."
Vancouver is solving a different problem entirely - offshore wealth being banked in the form of real estate. That happens here too but that's nothing to do with empty retail space.
So - where are cities which have successfully taxed landlords into renting property to tenants?
Arguably the city seizing a
Arguably the city seizing a property that has otherwise been left vacant is in fact a beneficial outcome.
There are a surprising number
There are a surprising number of vacant storefronts in Back bay and I'm never sure if it is because of demand or landlords just don't want to rent it out.
From former occupants...
Newbury St. Buildings bought by out of country investors. They would rather not have tenants.
I am hardly a free market enthusiast but…
“vacancy fees” (euphemistically named as such to avoid the harsh and perhaps more accurate reference of “tax”) is not the solution that is likely to increase occupancy rates and well could fail the constitutional adherence to the Commerce Clause (or similar issues).
A more realistic assessment of why the majority of vacancies exist is found in the economic issues that tenants face rather than landlord. Such things as rental rate levels, business operating expenses (e.g. minimum wage increases, health insurance costs or paid sick leave requirements) do more to drive and caused vacancies than rental speculation but, ultimately, the real culprit lies in the battle between brick and mortar retail businesses against the escalating growth of e-commerce.The retail environment is going through a transition primarily due to macro-market forces, like Amazon.
Property owners take a substantial financial hit when they are unable to secure a tenant. A vacancy tax, premised on a flawed set of assumptions, will punish owners further and do nothing to address vacancy. The allegations that a majority of landlords are leaving their spaces purposefully empty is erroneous because it results in landlords losing revenue.
There are things that can be done to address those that might be holding out for higher rental rates but an across the board levying of a fee is not the right medicine. It seems to me eliminating any sort of tax deduction for a vacant or non-income producing property might be one. Another would be to tax property the same rate whether it is occupied or vacant.
The real solution is to address the changing nature of commerce - challenge our zoning regs - maybe converting retail space to residential use is far more desirable than losing money due to vacancy. Maybe incentives might be required for the owners to make that conversion - but - thinking that vacancies are due to rent speculation and taxing owners to cure the problem is missing the forest because of the trees.
Another idea
To reduce the "blighted" look and increase foot traffic, place art installations and other curios in the windows of vacant shops until rented. Encourage landlords to allow "pop-up" temporary shops and events until spaces are rented. I realize the city may have to change / approve / whatever the code to allow more of this, but DO IT.
A good example is Westminster Street in Providence. They don't allow an empty storefront to remain boring. So, the street never looks vacant..and all existing businesses benefit.
Stupid
This is plain stupid.
A property owner should be allowed to do whatever they want with that property. If they decide to rent it or not is none of anyone else's business as long as they still pay taxes, they should be the ones who decide to rent or not to rent. If it burns down to the ground, then they deal with all the ramifications of that. If it gets vandalized, they deal with the ramifications of that.
You don't like what they do with the property legally, then you buy it.
The city keeps adding ridiculous fees/costs, and everyone cheers them along. And then the same people continue to complain how expensive it is to live or operate a business in the city. And then the solution to that is to add some more fees/costs to address that.
All these new fees/taxes/costs don't help.
Not if they're artificially lowering the taxes
Commercial property taxes take into account the value of the leases in the building. So if a building owner doesn't rent out the space for years, they pay less in taxes and the city has less revenue than it ought. A fee should be high enough to incentivize property owners to lease out the space to real tenants. Perhaps changing the assessment on vacant space to be market rate.
You don't like what they do
If you want to take an Objectivist/Libertarian philosophical view on property, then ask yourself what makes a parcel of real estate "yours" in the first place. A piece of paper in an old book at the register of deeds? That's what makes it "yours"? It's not like you invented the land under it out of thin air. Hell, if anything, the rightful owner of "your" land is the descendants of some Indian tribe. Land was stolen from them a long time ago, and you're lucky to have it now.
The point is that unless you have the military might to prove yourself a sovereign nation (i.e. you control an army/weapons that can protect its borders), then your claim to any parcel of land depends on government to back it up. Government can tax it, government has a say in how it's used.
Hey now!
....don't give him any ideas. How many small, independent republiks of Imamanistan do you want popping up around here?
Stealing ideas from DiBlasio?
This is the same idea that Bill DiBlasio wants for NYC only he came up with it first. He might get it past before he gets indicted for corruption, maybe not. Either way, NYC or Boston it's just another money grab by a politician.
Try Pittsburgh
Pittsburgh has been doing this for over a century.
Foreign investors
France has been taxing vacant properties for years and it has worked.
Worked?
If they're still taxing vacant properties after "years" of this practice, is it really working? Will Newbury St. look less vacant if the city collects $4million in fees?
This proposal does not go far
This proposal does not go far enough. Today the city has three tax rates for real estate:
1) residential, taxed at 1.05%
2) commercial, taxed at 2.52%
3) exempt, taxed at 0%
The city could probably use more categories
4) residential, rental, taxed at 1.5%
5) residential, short term rental, taxed at 3.5%
6) retail, taxed at 2%
7) retail, vacant, taxed at 3%
That should help spread the tax burden and improve the city.
Got numbers?
Do you have numbers showing how much revenue this would produce?
Or did you just pull these out of your ass?
Thought so.
Fair Weather Tax, What about Recessions?
It occurs to me that this makes sense (on its face) only in growth times when a supply-demand imbalance is a result of too much demand.
What happens when there's too much supply. Won't that perpetuate and exacerbate the plight of landowners and further a downward spiral? I guess this is a motivator, but wouldn't we need this to be repealed when the equation flips? Are there provisions in the law for this to happen and what's the trigger?
It was a dumb idea in '09, too
Flash back to 2009. Huge financial crisis, banks on the brink of failing, the Madoff scheme collapses, and real estate gets absolutely clobbered with foreclosures all over the place. Businesses fail left and right, and city streets are lined up with empty storefronts. If the business didn't fail, it had to cut things to the bone with layoffs, etc. I think we all agree that it was ugly all around.
So, you have this huge financial and real estate collapse, yet many people here on UH were demanding a "vacancy tax" on these empty storefronts. Nevermind the fact that there was absolutely no demand for this space and nobody, not even landlords, had any money. People here still wanted to tax someone because they couldn't rent their retail space out during the Great Recession.
That's the definition of a dumb idea.
Arlington's doing this right now
and there are less empty storefronts in Arlington Center than there were two years ago.
I am not speculating on cause and effect here. Just making an observation.