As the deadline for a new state budget looms in Albany, one formerly stalled piece of legislation—the pied-à-terre tax, to be levied on second homes in NYC valued at $5 million or higher—is gaining steam, with support from both state and city legislators.
But New York’s powerful real estate industry is now flexing its muscle over the tariff, according to the Wall Street Journal, which could change the proposal’s fate. And the Citizens Budget Commission, an independent fiscal watchdog group, recently called the proposal “appealing but problematic” in a blog post, noting that it’s “not a substitute for real property tax reform that increases equity.”
A proposed second-home tax has been lingering in the state legislature since 2014, when it was first proposed by Sen. Brad Hoylman. But broad support for the bill didn’t coalesce until earlier this year, when hedge funder Ken Griffin became the owner of a $238 million penthouse at 220 Central Park South, which is the single most expensive home purchased both in New York City and the United States.
The optics of the sale—the fact that Griffin previously acknowledged that it would not be his primary home, and its location along Billionaires’ Row—led to outrage. And as the New York Times notes, the city’s byzantine property tax laws also mean that Griffin, who is one of the world’s richest men, will pay a relative pittance each year: Under the current tax laws, it is valued at around $9 million, meaning Griffin may only “pay approximately $516,000 in taxes per year.”
This, supporters say, is why the tax is necessary: “It is not unreasonable to ask those who can afford to buy a $238 million second home in New York to pay a little more to keep our subways and schools running,” Hoylman said in a statement after the tax was included on the state’s budget resolution.
And Gov. Andrew Cuomo, who previously said he was loathe to support new taxes to provide funding for the MTA, has changed his tune. “If they have money to buy a $5 million apartment, which is not their prime residence, and it’s their little Manhattan getaway, they can afford the tax,” he said during an interview last week. The estimated $650 million generated annually by the tax could be put toward critical subway fixes, he argues.
But as the WSJ notes, “[t]he new tax would apply to any individual who bought a home through a corporation or a limited liability corporation,” meaning it would likely apply to New Yorkers purchasing primary homes.
Real estate industry insiders believe that the tax—and its potential to drive wealthy buyers away from New York City—could have a ripple effect. “If the real-estate market suffers, everybody will suffer,” Corcoran president Pam Liebman told the WSJ. “The condos will become rentals, the construction trades will lose out. Nobody will build another building.”
That’s a concern echoed by the CBC, which also notes that levying taxes based on who owns it and why, rather than the property itself, is “another piecemeal approach” to making the property tax laws less confusing. Those who might purchase pricey New York apartments—whether as second homes or for other reasons—may be less likely to in the future. “[L]awmakers should seriously consider lower tax rates that will do less harm to the attractiveness of New York City,” the CBC concludes.