Proposed New York Pied-à-Terre Tax Draws Sharp Reactions

A New York City pied-à-terre may not be as practical as it used to be after Gov. Kathy Hochul and Mayor Zohran Mamdani announced Tuesday evening an effort to impose a tax on non-primary residences.

The proposal, details of which are still pending negotiations among Albany lawmakers, seeks to raise $500 million for the state. The plan has already been met with mixed reviews from elected officials and business associations.

The tax will apply to one- to three-family homes, condominiums and co-ops valued above $5 million, according to the Mandani administration, and is aimed mainly toward foreign investors and out-of-towners using New York City’s housing stock as a place to park cash.

Ian Slater, founder of residential real estate firm Trove Partners, doesn’t see the tax generating as much revenue as the state expects. Many pied-à-terre buyers who have been flocking to real estate as an alternative to the stock market will spring for multiple units under $5 million, or look to the luxury rental market.

“I’m trying to caution people against flipping out about the pied-à-terre tax because this is the fourth time this tax has been introduced and it’s never passed,” Slater told Commercial Observer. “I think the political winds are such that this is the greatest chance it has had of being passed.”

Even if the pied-à-terre tax is approved by the New York State Senate and Assembly, the policy conditions in New York City would still be more favorable than London, for example, and wealthy local residents could face more competition for a primary home.

“The city has a budget deficit, but the big thing we’re supposed to be focusing on is creating more affordable housing. That was the whole plan,” Slater said. “People will just get creative, unfortunately, so you’ll start to see people pay $4.5 million for the apartment and $0.5 million for the furniture — things like that. There’s always some creative people hired to get around these kinds of taxes.”

A portion of the market of non-primary residences well above $5 million will inevitably get taxed, according to Slater, but the state isn’t going to be able to enforce it to the degree it expects.

Despite critics’ concerns, the proposal has its supporters.

New York City Council Speaker Julie Menin, who has been at odds with Mamdani regarding if and how the wealthiest earners should be taxed, believes a pied-à-terre tax will equitably fill the state’s coffers from the top down.

“This is a smart, sensible proposal that will generate significant new revenue to help fund the vital services New Yorkers rely on,” Menin said in a statement. “Coupled with the council’s proposals to secure additional revenue from the highest earners … this is the comprehensive approach we need to strengthen the city’s fiscal footing and tackle the affordability crisis without burdening working New Yorkers.”

However, the Real Estate Board of New York (REBNY) sees any annual tax on secondary homes in New York City as an imminent threat to the broader economic outlook for development and investment. REBNY leaders say such a tax will hobble the construction pipeline for new housing and pull tax revenue away from New York as potential buyers think twice.

“This annual tax will weaken the city’s broader economy -— all without addressing its fiscal problems in the first place,” REBNY President James Whelan said in a statement. “Its impact will reach far beyond a small group of owners. It will not raise the amount of revenue expected, but will eliminate thousands of construction jobs, lower property values, and raise costs for New Yorkers. Albany should focus on policies that encourage investment and housing production to create a more affordable city, not ones that stifle its growth.”

But supporters of the tax, such as government watchdog group Fiscal Policy Institute, see a pied-à-terre tax as an essential piece of the puzzle in leveraging the global wealth that New York City attracts, and reinvesting it into workforce development, government-funded housing and transit infrastructure.

For others, $500 million is just a good start to what the city and the state need to enact major changes.

“Over the past 15 years, New York City’s revenue has not grown at the same pace as its economy, and the city’s tax code has grown detached from economic circumstances,” Emily Eisner, acting executive director at the Fiscal Policy Institute, said in a statement. “To both cover the [New York City budgetary] gaps and make crucial investments in infrastructure, New York lawmakers will need to look toward broad-based solutions such as the personal income tax and corporate tax.”

Mark Hallum can be reached at mhallum@commercialobserver.com.