Facebook Twitter LinkedIn Google Plus RSS
Industry Insights

NJ's challenged suburban economy is now in crisis courtesy of Congress

By ,

New Jersey is the most suburban state in the nation, which means plenty of malls and office parks. Not too long ago these properties helped make New Jersey the most prosperous of the 50 states.

That is no longer the case and is made far worse by Congress final tax deal which would allow taxpayers to choose a property tax deduction or a deduction for state and local income taxes, up to $10,000 in either case, according to media reports Wednesday. 

This creates an existential crisis for many suburban communities that too many elected officials are not prepared to remedy. In fact, dozens of New Jersey suburban towns are now facing a perfect storm that will likely lead to significant property tax increases and reduced property values at the same, time unless mayors and state leaders take action soon.

Here’s the reality of New Jersey’s pending stagflation: Rapidly emptying suburban office parks are going the way of dinosaurs unless they are reimagined. Left unchanged, each of these formerly hefty taxpayers are going to win tax appeals that will have to be absorbed by homeowners.  At the same time, thanks to Congressional Republicans, what homeowners are able to deduct will shrink meaning significantly higher federal and local tax payments.

Take a couple living in a suburban home valued at $650,000.  Right now, they are paying about $16,500 in property tax, which they can fully deduct.  However, the town’s largest taxpayer — an office park — is facing huge vacancies and wants to reimagine the property into a live, work and play environment. Approvals have not been forthcoming which means a successful tax appeal is inevitable. Once obtained to maintain existing services, the town’s governing body will need to increase taxes on other properties, primarily homeowners, so the couple’s property tax would increase to about $18,500.  Without the ability to deduct they are now losing tax benefits of $8,500, possibly making their home unaffordable. And that will go for everyone on their block and everyone in their town.

New Jersey already has the largest outmigration of any state. With so many people looking to leave their town — and many other suburban towns with similar issues — what will that due to property values?  The answer is obvious.

If ever there was a time for bold leadership in Trenton this is it. As New Jerseyans, we all want to help Gov.-elect Phil Murphy’s administration find a statewide zoning solution to allow office parks to be reimagined.  It might be the only way to maintain property values and avoid a draining stagflation tragically unique to our state.

Carl Goldberg serves as co-chair for the Center for Real Estate at Rutgers University and is managing member of Canoe Brook Investors.

More Industry Insights

Write to the Editorial Department at editorial@njbiz.com

Leave a Comment

test

Please note: All comments will be reviewed and may take up to 24 hours to appear on the site.

Post Comment
View Comment Policy

Comments

local CPA December 14, 2017 4:25 pm

Congress didn't create the fiscal mess NJ is in. NJ doesn't have a revenue problem, NJ has a spending problem. Where in the world can you contribute $250,000 into a pension that pays out $2,000,000? Union greed and politicians enabling them for votes are what created this fiscal mess. Don't forget, NJ didn't have an income tax until 1977 and we got along fine up until that point.

Joe Texas December 15, 2017 3:03 pm

This article, while well intentioned, is misinformed. NJ’S economy is in crisis, but it’s not because of Congress, it’s becuase Trenton cannot controll spending. N.J. DID NOT HAVE AN INCOME TAX UNTIL 1977. For 190 years our state thrived without and income tax. Now we are the highest taxed state in the country, proving that now matter how much money you give the state, it will never be enough. N.J. government is bought and paid for by the public sector worker unions. What other profession pays out $2,000,000 in lifetime retirement benefits on a $200,000 contribution? Our government only works for those that work for the government. Good luck figuring this out, in a few years I will be watching N.J. implode from sunny Florida.

Dave December 15, 2017 5:01 pm

Time to consolidate Government; Police etc... We can no longer afford it.

Chris Leigh December 31, 2017 4:42 pm

I hope Mr Goldberg does a better job analyzing numbers for his investors than his one sided analysis presented here.
Assume all of this does go the way he predicted, it is my understanding that the standard deduction for 2018 for married filers is now going to be $24,400 double what is was in 2017. As long as you are paying less than $24,400 in property taxes and interest you will be fine. The sky is not falling. Also he does note that you would stand to lose $8,500 in tax benefits. This is not a loss of $8500 but a loss of deduction which at the top rate (37%) would be loss of $3145. Not a small amount but probably not as scary as $8500. Please note the top rate kicks in somewhere around $500,000.

close