London and Vancouver have both come up with ways to tax occasional residents
Number 220 Central Park South is one of New York City’s swankier addresses. Its amenities include a golf simulation room and a saltwater swimming pool. In January Ken Griffin, the founder of Citadel, a hedge fund, bought a penthouse in the building for $238m, setting a record for the priciest home in America. Mr Griffin, who has homes in Chicago, Florida and London, reportedly will not make this his primary residence, thus reigniting an old proposal to tax New York City’s many pieds-à-terre.
Pieds-à-terre are part-time second homes occupied for less than half the year. Many are simply convenient places to park money and are vacant most of the time. Because their owners have their primary residences out of state, they are not subject to state or local income taxes. Nor do they generate much in local sales-tax revenues. After the Griffin deal closed, Corey Johnson, the city council’s Speaker, announced that it was “time for a pied-à-terre tax”.
Legislation which had been languishing in Albany for five years is gathering support. It would impose a yearly tax of between 0.5% and 4% on the assessed value of apartments worth $5m or more. Scott Stringer, the city’s comptroller, estimates the tax would generate a minimum of $650m a year. Robert Mujica, the state budget director, said taxing the absentee owners of expensive non-primary residences would help pay to restore the crumbling subway (though a few hundred million would not go far in those long tunnels). Andrew Cuomo, New York’s governor, supports the idea too.
Over the past few years New York has seen a lot of high-end property development, as new skinny towers have changed the city skyline. The most recent Housing and Vacancy Survey found that the number of non-primary residences increased from 55,000 in 2014 to 75,000 in 2017.
Estate agents fret that the tax will hit their profits. Manhattan has 8,600 unsold newly built units. At the current rate of sale, it would take 6.4 years to sell them all. According to Grant Long, an economist with StreetEasy, a listing site, only 21% of units priced at $5m and higher found buyers. Units that sold closed below the asking price. “It’s insanity,” says Doug Russell of Brown Harris Stevens, a brokerage that primarily serves the wealthy. “It will kill New York real estate.” Mr Russell foresees prices will stay under $5m to avoid the tax. He also predicts developers will go bankrupt.
Some buyers have been put off by a change in federal tax law which caps state and local tax deductions, including property taxes, at $10,000. Owners already pay a mansion tax, a one-time 1% sales tax. More tax, says Harry Nassar, a broker at Sotheby’s, will cause people to shun New York. Some advocates of new taxes might consider that to be a benefit.
If New York implements the tax, it would join Vancouver, which has an empty-home tax, and London, which has a surcharge on purchases of second homes. Some blame increased “stamp duty” a tax on home purchases, for a softening in the London market. But it did not dissuade Mr Griffin from spending £95m ($122m) in January on a London town house. That purchase would have incurred a one-off tax of $18.5m. By contrast, if New York’s laws change, he could face $8.9m a year in pied-à-terre taxes for his Manhattan base.