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.