- New York State legislators are reconsidering an annual tax on second homes in New York City costing over $5 million.
- The tax, known as a pied-à-terre tax, could batter an already sagging market for high-end apartments that has been seen a glut of inventory in recent years.
- More recently, the high-end residential market in the city has had to contend with the COVID-19, which has prompted residents to flee to the suburbs, where sales contracts are surging.
- New York State Senator Brad Hoylman, a Manhattan Democrat who is sponsoring the legislation, told Business Insider the tax could generate $100 million a year.
- Visit Business Insider’s homepage for more stories.
Add another worry to the growing list of woes facing New York City’s struggling real estate industry.
A key New York State legislator suggested he and colleagues will revive an effort to pass an annual tax on luxury second homes in New York City, a long-talked-about proposal that real-estate executives say would further depress an already-battered market for high-end apartments.
Brad Hoylman, a Manhattan Democrat who sponsored the initial legislation, reintroduced a revised version of the bill in August.
Proponents of the so-called pied-à-terre tax say it would target only the city’s richest homeowners, including billionaires such as Amazon CEO Jeff Bezos, whose net worth just crossed $200 billion, and the hedge fund manager Ken Griffin, who last year purchased the city’s most expensive penthouse. Griffin’s purchase of the $238 million penthouse overlooking Central Park in January 2019 was partly what reinvigorated a push for the legislation last year.
The tax, if implemented, could be an indication of the way legislators may seek to levy real estate to try to raise revenue as government deficits spiral amid the coronavirus crisis.
“New York State is leaving money on the table,” Hoylman said . “This is the kind of tax I’m interested in exploring where we can generate revenue from a group of people who are non-New Yorkers and aren’t contributing to the city’s wellbeing except by breezing through for short stays and spending money perhaps in restaurants and theaters, which, let’s be real, are closed right now.”
Legislators have considered a pied-à-terre tax before
Such legislation has been talked about for years.
In a bill drafted last year by Hoylman and other state legislators, the tax was imagined as a surcharge on second homes worth more than $5 million, ranging from 0.5% to 4% on the portion of value in excess of the $5 million threshold.
That plan received heavy blowback from the city’s politically influential real-estate industry and was shelved in favor of an agreement to instead raise a one-time charge known as the mansion tax on home purchases above $2 million and lift a separate transfer tax on purchases above $3 million.
This legislative season, amid yawning budget gaps, observers in the real estate industry fear the legislation could finally pass.
“I think this time could be different because of the way there is a growing sentiment in NYC of a favoritism towards the rich,” said Pam Liebman, president and CEO of the brokerage firm Corcoran. “The city has gone more progressive and this is certainly supported by more progressive legislators. And the city is in desperate need for money after the pandemic.”
Real estate executives said a recurring fee for owning second homes would damage pricing and demand for upper-tier apartments. In Manhattan, especially, there is already a glut of high-end units that had been languishing before the COVID-19 crisis. Those apartments face an even tougher sell as many upscale city residents have migrated to the suburbs, according to recent residential sales data.
“I understand that the city and state government are really hurting right now,” said Frederick Warburg Peters, the CEO of the residential brokerage Warburg Realty. “The problem is the real estate industry is also really hurting right now. We have literally just come off of four months in which it was impossible for us to arrange deals.”
There are currently 974 listings in the city asking for $5 million or more, which could be snared by the legislation if the bill were to pass in its current form, according to data from Miller Samuel. Sales of such apartments have become more difficult to arrange in recent months, as the pandemic has turned buyers away from Manhattan, which was one of the areas of the country hit hardest by the crisis. In the second quarter, the pace of sales for apartments costing $3.7 million or more slowed by over 120% compared to the same quarter a year ago.
Meanwhile, contract signings were up by 26.6% on Long Island, N.Y., 50.7% in New York’s Westchester County, and 11% in Fairfield, Conn., in August versus the same month the year prior, according to Miller Samuel data. In the Hamptons, the tony south-shore residential enclave on the east end of Long Island, contract signings for homes jumped 104.2% in August compared to the same month the previous year, according to Miller Samuel data.
In addition to the mansion tax, the city’s high-end residential real estate industry has suffered other tax-related blows, including a cap on the amount of state and local taxes that can be deducted from federal income taxes that had been instituted by the Trump administration in 2017.
Hoylman said the pied-à-terre tax could generate $100 million a year and might be necessary given the sheer size of the state’s deficit amid the coronavirus, which thrust the economy into a recession and sapped revenue.
Budget officials have said the state may now have a $14.5 billion gap and the city may have a $5 billion shortfall, according to recent reports. The MTA, meanwhile, which operates the city’s subway, bus and commuter rail systems, said it is facing a $16 billion deficit and may have to institute drastic service cuts if it doesn’t receive federal aid.
“My bias is toward a tax that applies to people who have the most ability to pay,” Hoylman said. “This is one of multiple strategies that we should be examining.”
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