New England Condominium December 2019

December 2019 NEWENGLANDCONDO.COM Since their insurgence over the last dozen years, Airbnb, Homeaway/VRBO and other home-sharing sites using a similar model have provided travelers all across the globe with alternative – of- ten more affordable – accommodation to hotels, motels, inns, and B&Bs. The home-sharing model certainly has been an economic boon to budget-seeking travelers, locales with weak tourism, and property owners who use the services as an income stream. In many cases, how- ever—particularly in larger cities in the US — renting out one’s home on a short- term basis (typically anything less than 30 days) is actually illegal. In cities like New York, laws pre- cluding these types of transactions have been on the books for years; other cities have recently passed or are in the pro- cess of passing laws that are essentially reactions to the deleterious effects of home-sharing on city budgets, commu- nity character, gentrification, housing scarcity, and residential safety. The issue has been the subject of pitched debate in Boston as well. As of this last summer, legal battles continued after a judge al- lowed Boston to impose a $300-per- night fine on Airbnb and other online platforms for listings that failed to com- ply with the city’s rules. The appeals pro- cess is ongoing, and tensions are high on all sides of the table. Share and Share Dislike Like with many of the titans of the so-called ‘share economy’—ride-sharing services like Uber and Lyft; office-shares like WeWork—the practical application of home-sharing has shifted from a lit- eral ‘share’ to something less personal, and more transactional. Just as the car- continued on page 8 In markets throughout the nation, 2019 was a year of uncertainty, reflecting change in the basic mechanisms of how we view, buy, and sell real estate. That uncertainty extended to all markets, from traditional single-family homes to co-ops and condominiums, to commercial properties – and the same factors that affected markets in 2019 are expected to continue to reverberate in 2020. Taxes, Real Estate, and…Taxes When it comes to home ownership, the conventional wisdom of economists (and the gov- ernment policy that followed it after World War II) held that appreciation of real estate as the primary asset of middle-class families was the most successful and secure way to build wealth and insure a comfortable retirement – particularly when combined with Social Security re- tirement benefits. As a result, and to encourage home purchases and long-term ownership, government at all levels offered benefits to families in the form of tax deductions. The federal government enshrined that approach by providing a deduction for state and local income and real estate taxes against income in federal income tax filings. Over the decades since the mid-20th century, the evolution of deductible taxes has devel- oped in two main directions, sometimes simultaneously. Some states and municipalities have enacted state and local income taxes, while others – especially at the local level – have levied higher and higher real estate taxes to provide for superior schools and other civil services. These state and local taxes (often abbreviated with the acronym SALT) became an important consideration in home prices, as they had long-term effects on the after-tax cost of home own- ership. In most cases, these deductions made homes in high-tax areas more affordable, after Economists often say that markets love consistency. So do condos and HOAs – and they share that preference for stability with another important group: insurance com- panies. Residential communities seek to keep their costs stable, and insurance com- panies seek to keep their profitability high by reducing risk. In the coming year, how- ever, residential communities and insur- ance companies may find themselves on a collision course due to these same factors. Premiums – the cost of insurance – are likely going up and by no small amount, as co-ops, condos, and HOAs seek to keep their operating costs down. An Overview Alex Seaman is a senior vice president of HUB International, an insurer located in Woodbury, New York. He predicts a sub- stantial increase in premiums for 2020. “I have been proactively providing updates to my clients on the recent changes in the insurance market which are now becom- ing increasingly volatile,” he says. “This is especially true with respect to umbrella liability. Many \\\[communities\\\] have seen several major market fluctuations, includ- ing those caused by 9/11 and Superstorm Sandy. Though the current changes are not nearly as severe, the rationale \\\[for the fluc- tuations\\\] is not nearly as clear.” “Historically,” Seaman continues, “the insurance industry has had numerous rat- ing cycles based on a number of factors, including interest rates, legal regulations, natural and man-made disasters, indus- try profits, and reinsurance requirements. Cycles have been dramatic in some cases, and they have typically lasted four to five years or less. For the past eight to 10 years, we have gone through an unprecedented period of industry rate stability. Rates have been largely flat, with relatively small in- creases or decreases, depending on claims experience and or property valuations. We began to see indications a few months ago that rates might begin to increase. We are now seeing indications of more significant increases nationally, and in virtually all tax considerations were calculated in the cost of ownership. The Tax Cuts & Jobs Act of 2017 changed that. While the new law increased the dollar amount for a standard deduction by doubling it, the change also capped SALT deductions at $10,000 per year for a married couple filing jointly. That cap increased the after-tax cost of home ownership, ultimately depressing or even permanently decreas- ing values, and therefore prices. 2019-2020 Round-up and Projection The Year that Was, The Year to Come BY A J SIDRANSKY The Illegal Home-Sharing Issue Safety and Security Concerns BY DARCEY GERSTEIN Insurance Rates to Rise in 2020 Communities Should Plan for Increases BY A J SIDRANSKY 205 Lexington Avenue, NY, NY 10016 • CHANGE SERVICE REQUESTED continued on page 7 continued on page 9 THE CONDO, HOA & CO-OP RESOURCE CONDOMINIUM NEW ENGLAND