A good way to raise revenue or a disaster for NYC?
New York Realtors would tell you it is a terrible idea, that it would affect many middle-class jobs and families that own several homes for different family members. The Wall Street Journal says it could cut the value 2nd homes, starting at a value of $5 million, and totalling around 5,400 units, by half. NYC’s position of being a favorite place to invest in residential property would be dramatically hurt, if not killed, in their eyes.
The NYTimes sees it as a revenue opportunity. The proposed tax is .5% to 4%, based on the total value, the 4% applying at $25 million and above. It would see a shift of taxes collected, even if not an enormous number, to high-end owners. Currently, heavier tax burdens are carried by rental apartment buildings and by mortgagees who have to pay mortgage recording tax. There is no transfer tax when homes are purchased with cash, as most of the top-end units are. There are also significant tax breaks available for high-end Coops and brownstones that are not available to the average buyer, as per a NYTimes analysis on the topic.
Many, perhaps most, of the ultra-luxury apartments sit unused or rarely used. Take a look at how many units have the lights on at night on “billionaires row”. Many of these properties were bought strictly as an investment with little intent to be used as a regular residence. The ultra luxury market share of international buyers, such as Russian, Chinese and others, was 40% as recently as 2016. It seems a shame to have so many luxury units not being used in a city like ours, perhaps crowding out more accessible housing options but perhaps completely independent of it.
Based on the results of similar taxes imposed in other large cities, the ultra luxury market would definitely be affected. Vancouver had a similar issue of vacant, high-end homes and imposed a 1% tax. The values of those homes dropped by as much as 30% and doing a lot of damage to that submarket. Not all of the change in value can be linked directly to the tax, and long term some of that value could return.
The big issue is that there are already so many ultra luxury homes in NYC with many more under construction. Add over supply (that market took a beating in 2018) with a new tax and devaluation is going to happen. But, it is far from certain that NYC owes such a small number any protection from their own investment speculations. If they pulled their money out in large numbers, what would the impact to the city be? Not sure that a crisis in that submarket would spread but don’t really know. If the tax were imposed years ago and the tax was already part of the purchase price, we wouldn’t be in this position now.
With all the issues that NY has already with affordable housing, it does, in total seem like some sort of a tax should be considered and evaluated as it takes effect. Not imposing the tax doesn’t seem to help what is perhaps the larger housing crisis and letting the problem get bigger seems doesn’t seem to solve anything.