New York may soon be following in Vancouver’s footsteps after the record-breaking sale of a Manhattan penthouse has prompted renewed calls for a “pied-a-terre tax” on empty homes valued at above $5 million.
The city is looking to Vancouver, as well as Paris and Singapore, to see how other global cities have implemented a vacancy tax on second homes and how successful they have been.
The pied-a-terre tax for New York was first mooted back in 2014 but it has been repeatedly beaten down in the Legislature. However, the global-headline-hitting sale of a four-storey Manhattan penthouse for a jaw-dropping $238 million – the biggest residential deal in U.S. history – has sparked fresh momentum for a vacancy tax. The new make-up of the houses of Legislature, with Democrats taking over, has also seen new political support for the idea, with both New York state govenor Andrew Cuomo and state Senator Brad Hoylman both vociferously backing it, among many other Democrats.
The proposed annual tax would be applied on a sliding scale to homes assessed at above $5 million, starting at 0.5 per cent of assessed value, and rising to four per cent per year for the priciest properties.
New York City comptroller Scott Stringer posted the below tweet last month:
If you can afford a $5 million condo as a second home you can afford to help the City a little more. A pied-à-terre tax would bring in as much as $650 million yearly.— Scott M. Stringer (@NYCComptroller) February 9, 2019
That’s $$$ to fix our subways, repair NYCHA, and build affordable housing. https://t.co/c5guPObclb
And New York City councillor Corey Johnson, who is pegged to run for city mayor, posted the following:
Enough.— NYC Council Speaker Corey Johnson (@NYCSpeakerCoJo) January 25, 2019
It’s time for a pied-a-terre tax. We should tax luxury non-primary residences, like this one likely will be.
Are you with me? https://t.co/fGxG88j6k5
The New York Times article on support for the tax quotes Vancouver Mayor Kennedy Stewart as saying, “The best level to do this at is the city level, because the taxes can go right back into fixing the problem.” The article observes that “In 2018, the number of vacant homes [in Vancouver] declined by 15 per cent and about $33 million in taxes is expected to be collected — a revenue stream earmarked for affordable housing.”
Just like in Vancouver, the New York real estate industry has come out against the tax, arguing that it's impossible to tell what effect the tax would have on real estate values and the associated side-effects.
According to a Wall Street Journal analysis, if the tax were implemented, homes worth $25 million or more could crash by close to half their value, as buyers would shy away from properties where they’d have to pay upwards of $1 million per year in tax.
For those doing the math and wondering if Kenneth C. Griffin, the hedge fund multi-billionaire who paid $238 million for that Central Park penthouse, will have to pay $9.52 million a year – the answer is no. The tax would be applied on the assessed value of a home, not its purchase price. Despite that staggering price, Griffin’s new penthouse was last valued at a mere $9.4 million, according to the US Department of Finance. That would give Griffin a yearly pied-a-terre tax bill of $516,000 – until the property is reassessed.