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Pied-à-terre tax could hurt the value of NYC’s priciest homes

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The tariff is gaining steam with lawmakers but has the real estate industry rigorously lobbying against it

The 220 Central Park South tower, where Ken Griffin bought his $238 million penthouse, still in the midst of construction in December 2018.
Gary Hershorn/Getty Images

A pied-à-terre tax on properties worth $25 million or more could slash the value of those homes by nearly half, analysis by the Wall Street Journal shows.

The tax, which was first introduced by State Senator Brad Hoylman in 2014, aims to levy an annual fee on those who own pricey second homes in New York valued at $5 million or higher and would be part of the state budget for the fiscal year that starts on April 1.

If enacted, the tax would have the largest impact on a small amount of houses, condos, and co-ops valued at $25 million or more. These properties could see a roughly 46 percent drop in value, while those worth between $20 million and $25 million could see a 26 percent dip, according to the WSJ’s analysis that calculated the tax burden owners could face under the bill for the next 30 years.

Billionaire Ken Griffin’s purchase of a $238 million Central Park South penthouse has given new life to the formerly stalled legislation pushing the annual fee. It has gained steam with state lawmakers—Gov. Andrew Cuomo chiefly among them—and city officials such as Comptroller Scott Stringer and a handful of City Council members who say it will raise funds to repair the crumbling subway system and other crucial needs.

“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 in the state’s budget resolution.

But the real estate industry is staunchly opposed to the tariff and is rigorously lobbying against the bill in favor of a one-time transfer tax that would be imposed on high-priced apartments, the WSJ reports.

Analysis by the paper found that the tax would drum up a total $471 million annually—less than Stringer’s estimate of $650 million but more than the $372 million figure claimed by the real estate industry. Half of that number would come from 280 homes valued at $25 million or more—24 co-ops, 40 houses, and 218 condominiums—while 923 property owners with apartments valued under $6 million would hand over $2.1 million per a year, according to the WSJ.

An owner of a multimillion-dollar apartment that would be subject to the tax told the paper that the levy would have cataclysmic impacts on New York City’s luxury real estate market and scare off those looking to make long-term investments.

“The tax is a disaster,” the owner told the WSJ. “If you actually put the tax in place, you would massively reduce the value of real estate.” That’s a concern shared by the Citizens Budget Commission, a fiscal watchdog group, which in a recent blog post called the pied-à-terre tax a sort of misguided shortcut to property tax reform.

The group called the proposal “appealing but problematic” and stressed that “a pied-à-terre tax is not a substitute for real property tax reform that increases equity.”

“Lawmakers should seriously consider lower tax rates that will do less harm to the attractiveness of New York City,” the CBC wrote.