Here we go again. With budget deficits looming as a result of the pandemic and a Democratic supermajority in the State Senate, a pied-à-terre tax, which would tax owners of second homes in New York City on an annual basis, is looking increasingly like it might become a reality, Brick Underground reports. Proponents say the tax will generate desperately needed revenue, while opponents argue that it will further damage the city’s crippled real estate market – without providing the promised windfall.
A pied-a-terre tax, in various forms, has been on the table for years. The most recent proposal, which was ditched last year in favor of a one-time scaled mansion tax, targeted owners of condos and co-ops with assessed values of $300,000 or more. Not surprisingly, brokers are fiercely opposed to a pied-à-terre tax. Co-op advocates are equally vehement, citing the bureaucratic nightmare of determining if an apartment is a primary or secondary residence, among other grievances.
However, Democrats see their success at the polls last month as a validation of left-leaning policies. State Sen. Brian Kavanagh, a Democrat who represents Lower Manhattan and western Brooklyn, chairs the housing committee. He says New Yorkers can expect to see "ambitious progressive proposals" out of Albany in the coming year. He points out that for years there have been generous tax breaks given to developers and passed on to owners through the 421-a and J51 tax abatement programs – with arguably very limited public benefit. "We’ve seen a lot of changes in the last two years and I expect we will see more,” Kavanagh says. “Tax policy as it relates to the real estate industry is an area where you are likely to see a very different approach.”
One of the biggest criticisms of the tax is that it will bring prices down and lower the income generated by other real estate taxes, such as the transfer tax and mansion tax. Jonathan Miller, head of the appraisal firm Miller Samuel, says the proposal is "catastrophic" and would result in a net loss in tax revenue because it ignores the fact that tax policy changes human behavior. As evidence, he notes that when the scaled mansion tax was brought in last year, there was a sharp drop in sales activity. Miller also says the pied-à-terre tax would "collapse development" and the income generated from it.
It's a sentiment echoed by many in the real estate business. Becki Danchik, a broker with Warburg Realty, says New Yorkers understand the need to raise money. But, she adds, "by implementing an additional tax, it will only discourage people from investing in real estate here, and the city will lose more revenue than it could have gained from welcoming a part-time resident."
Gill Chowdhury, another Warburg broker, adds: "The larger consequences will be to pile on supply onto an already hurting market, which will cause a drastic fall in prices over the coming years."
For his part, Kavanagh says he and his colleagues in the State Senate are open to all ideas from the real estate community. "Short term we will have to do a broad tax package to increase revenue,” he says. “And then longer term we will have to evaluate all of these taxes and figure out what the public benefit is.”
Engage, enrage, ask questions and give answers with your community of board members. Submit your questions and comments here!
Co-op and condo board business broken down into bite-sized bits - 2 stories each week. Read now on all digital devices.
A free digital resource for co-op/condo board directors. Published twice a month. Read now on all digital devices.