'This Will Kill Demand': CRE Players Fear Pied-À-Terre Tax Would Break NYC's Residential Market
The deadline for a new state budget is now just days away, and the real estate industry is pulling an eleventh-hour effort to try and kill a proposed tax it says would cripple the entire residential market.
The pied-à-terre tax, as it is known, would put an annual tax on homes worth north of $5M that are not the owner's primary residence. The proposal has widespread support in Albany, and its advocates say it will generate hundreds of millions of dollars to fix the city’s crumbling infrastructure.
The plan has real estate developers and brokers in a panic, arguing the tax comes from a “soak the rich” mentality and will ultimately drive down prices, cost jobs and disrupt the entire construction and development market.
“The city needs to look to other areas of income than real estate to fill its coffers,” said Stephen Kliegerman, the president of Halstead Property Development Marketing, who said some buyers have already been put off as a result of the reduction in the amount of state and local taxes, known as SALT, taxpayers can write off as a result of the 2017 overhaul.
“The city can’t afford another tax on real estate," he said. "It’s going to start pushing people away.”
Some high-end developers agree, arguing its ramifications stretch beyond wealthy buyers and owners.
“This will kill demand,” said JDS Development Group principal David Juracich, whose firm is co-developing 111 West 57th St., a high-end condo development where a penthouse is asking $57M. “That will dramatically affect prices, which will dramatically affect the appetite for developers to keep developing, which affects the employment of tens of thousands.”
The industry’s peak lobby group, the Real Estate Board of New York, has spoken out against the plan, and vowed to continue to advocate against it for the next two weeks.
“This is not something that is well thought-out and put before the public for months to chew on and analyze,” REBNY President John Banks told reporters at his group's spring luncheon Tuesday. "This came on the table when the revenue for the marijuana legalization fell off the table and they needed to fill a hole in the budget. So they grabbed onto the pied-à-terre tax.”
Gov. Andrew Cuomo said earlier this month that if the marijuana legislation had passed, this new plan wouldn’t have been necessary. Analysis from City Comptroller Scott Stringer pegs funds from the tax at a minimum of $650M every year.
The legislation's sponsor, state Sen. Brad Hoylman, said in a statement that the budget “fights for the needs of all New Yorkers — not just the wealthiest one percent.”
“If you can afford a $5M 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 $650M yearly. That’s $$$ to fix our subways, repair NYCHA, and build affordable housing,” Cuomo tweeted last month, with a link to a New York Times article about Ken Griffin’s $238M penthouse purchase at 220 Central Park South. He also said publicly that if people can spare $5M for a "little Manhattan getaway” they can afford to pay the tax, according to The Wall Street Journal.
That publication’s analysis found the owner of a home valued at $41M would be on the hook for an extra $1M in taxes every year.
REBNY disputes the comptroller’s figure of $650M, arguing the revenue the measure would actually bring in is around half that much, Banks said. REBNY believes the tax would apply to fewer homes than the government estimates.
An analysis based on Terra Holdings data has the figure at $372M per year, Crain’s New York Business reports. The Citizen’s Budget Commission, too, has described the proposal as “appealing politically” but “problematic” and is advocating for property tax reform.
“I think there is still a lot to [be] clarified and spelled out in great detail about how this would work,” CBC Director of City Studies Ana Champeny said.
Banks said REBNY supports the idea of congestion pricing, which would charge a fee to drivers coming into the most populous parts of Manhattan, and it continues to work on alternative ideas.
“I can't predict our success,” he said. “We are going to advocate strenuously … But I can't say, given the budgetary needs, the political environment and the fact that the budget is coming to a deadline in the next week or two weeks. So that all puts pressure on us.”
The state Senate is controlled by Democrats for the first time in nearly a decade, and the industry is already preparing for widespread changes to rent regulation. Meanwhile, several elected officials have sought to distance themselves from the real estate industry, Politico reported last month, by spurning real estate donations.
Council Speaker Corey Johnson has sworn off taking money from developers in the event of a mayoral run in 2021, per the publication, as have New York City Public Advocate Jumaane Williams and state Sens. Michael Gianaris and Julia Salazar.
“Real estate right now sits under a dark cloud of resentment,” Olshan Realty President Donna Olshan said. “REBNY is no longer powerful.”