State lawmakers are quietly reviving plans for an annual tax on second homes in New York City.
The reach for revenue goes beyond the rarefied condo towers of Manhattan’s Billionaire’s Row, with different taxing methods for every category of homes owned by part-time residents across the boroughs. And it comes as more New Yorkers are temporarily living elsewhere, a feature of pandemic life that may continue even as the public-health crisis subsides.
Democratic legislators updated their long-running proposal for a New York City “pied-a-terre tax” in October and sent it to committee for review before an official introduction in January. With a veto-proof majority now in both the state senate and assembly, Democrats are pushing again for a levy that could raise about $390 million annually, according to Senator Brad Hoylman, a sponsor of the measure.
“This tax is certainly a priority for the 2021 state legislative session,” said Hoylman, whose district stretches from Manhattan’s Upper West Side to Chelsea and Greenwich Village.
Opposition is also building — and not just from real estate professionals concerned that the new levy would strangle a luxury sales market that’s already gasping. Homeowners are banding together to argue that a pied-a-terre tax would hurt the city’s full-time residents, too.
Suburban Escape
The proposed levy would discourage wealthy out-of-towners from purchasing a part-time place in New York, limiting the buyer pool for owners who might someday want to sell, said Stuart Saft, a real estate partner at law firm Holland & Knight who co-founded the NYC Homeowners Coalition last month. Reduced demand would sink property values, he said, and buyers may seek steep discounts to compensate for the added future expense.
For New Yorkers who’ve come to enjoy spending more time in the suburbs during the pandemic, the notions of primary and secondary homes have become muddied. The proposed law could expose their city residence to the levy and put tax collectors in the strange position of determining where owners sleep most nights of the year, Saft said. Rather than accept that burden, some people may decide to make their escape from New York permanent.
“So many New Yorkers with the financial means of having multiple homes are staying in their out-of-New York City homes, thinking ‘This isn’t so bad. I don’t really need to come back,’” Saft said. “Maybe we shouldn’t be creating an incentive for people to leave.”
Yearly Levy
The tax proposal is being revived as city officials search for ways to plug a projected $3.75 billion budget gap for the next fiscal year.
The revised plan seeks to impose a yearly tax of 10% to 13.5% on condos and co-ops that are used as a secondary residence and have an assessed value of at least $300,000. That, according to Hoylman, translates into a market value of at least $5 million. One- to three-family homes in that price range also would be taxed, at a rate of 0.5% to 4% on their market value above $5 million.
The new bill offers exemptions to pied-a-terre owners who can demonstrate, with a private appraisal, that the fair market value of their property is less than $5 million, Hoylman said.
But that’s just another burden on owners who would have to shoulder the costs of proving their exemption, according to Saft. Because of the vagaries of the city’s methods, an assessed value of $300,000 would, in some neighborhoods, capture homes with a market value of as little as $2 million, meaning more people will be tasked with making tax appeals to the city, he said.
It’s a critical time for New York’s luxury-home market, where sales and prices have been lagging for years amid a pile up of new development and flagging interest from overseas buyers. The pandemic made things worse as those with discretionary income to buy second and third homes are choosing warmer or less-urban locations for investment.
“Just what we need on top of Covid,” said Frederick Peters, chief executive officer of Manhattan brokerage Warburg Realty, arguing the tax would further weaken the city’s sales market. Second-home seekers may instead turn to places like Greenwich, Connecticut, and drive into New York for cultural attractions, or find temporary lodging nearby.
“When you do return to a more-normalized New York,” Peters said, “this probably ends up being to the benefit of the hotel business.”
Vibrant Cities
State lawmakers attempted to impose a pied-a-terre levy in 2019, but instead agreed to increase the “mansion tax” — a one-time surcharge on closing costs for high-end properties.
An annual pied-a-terre tax, if passed, would be the first of its kind for a U.S. city, said Jonas Shaende, chief economist with the Fiscal Policy Institute, a research group that championed the idea for New York in a 2014 paper. Other global cities that enacted a similar levy — such as Paris, London and Sydney — have continued to draw buyers after the fact, he said.
The vibrancy of these cities — their arts, culture and top-notch educational institutions — is what makes pied-a-terre markets, and their sky-high property values, possible, according to Shaende. So it makes sense for local governments to capture some of that value through taxation and use the funds to pay for services that full-time and part-time residents alike rely on, he said.
“It’s a good source of revenue to have that is uniquely available to global destination cities,” Shaende said. “Not using it would be strange.”
This article was provided by Bloomberg News.
