By Real Estate Weekly
By Dan Orlando
A year after Bill de Blasio won the mayoral election with a
promise of reducing inequality, New York City
According to their proponents, wealthy pied-a-terre owners
literally embody the best of trickle-down economics.
By spending millions on penthouses in high-rise new
developments, they effectively subsidize affordable units on lower floors and
generate taxes by making construction profitable in the first place.
To its detractors, pied-a-terres embody the worst of a welfare
state for the rich.
Billionaires able to spend a fortune on local apartments often
reap the benefits of publicly subsidized new construction and enjoy the public
services that make this city great and safe — without having to pay a penny for
it.
Unlike permanent residents, most pied-a-terre owners are not
subject to the city’s income tax.
The long-simmering debate recently took on a degree of urgency
when State Senator Brad Hoylman proposed a citywide pied-a-terre tax. But while
some economists and public advocates endorsed his proposal, the real estate
industry has almost unanimously come out against it.
“REBNY is vigorously opposed to this
proposal and will continue to express our serious concerns to the appropriate
officials about the impact of this proposal on our industry and our city,”
REBNY president Steven Spinola wrote in a recent column in Real Estate Weekly.
“This proposal has had an immediate, direct, and negative impact
on the residential sales market. In the few days since it was first proposed,
we have received calls about sales that have been put on hold and threatened
not to close as a result of the announcement of this proposal. Similarly, new
developments currently in the pre-development stage are being delayed as
builders weigh the impact of this proposal.”
Should the measure pass, owners of second homes within the
city’s limits — including those whose main residence is also in New York City —
would be subject to a sliding scale tariff if the residence is worth north of
$5 million.
Homes just squeaking into taxable territory will cost owners a
recurring .05 percent of the property’s worth, while on the higher end of the
spectrum, properties that are valued at $25 million or more would generate a
four percent annual tax.
As of this fall, more than 1,550 non-primary residences eclipse
the minimum taxable requirements.
The revenue generated from the tax would theoretically pump
hundreds of millions of dollars into the city’s coffers, but as Jonathan J.
Miller, president/CEO of the Miller Samuel Inc. real estate appraisal firm
points out, the plan may generate collateral damage as well.
“The administration kind of walks a fine line between generating
revenue from this tax and maintaining the revenue generated from the
construction activity from these new development projects,” Miller said.
Calling out-of-town interest in secondary housing a “key driver
for the new development boom that the city is currently enjoying,” Miller
touted the value that luxury property owners bring the city’s developers,
investors and other real estate players.
“The current state of activity is going to be impacted by this
to a certain degree,” said Miller, who estimates that pied-a-terre residences
constitute about one third of the $5 million and above market.
“I think what you do is,
you take people that were on the margin and remove them from the market,” he
continued.
Wei min Tan, an associate
broker at Charles Rutenberg LLC New York, agrees with Miller’s assessment that
financial repercussions could deter even the most financially stable property
buyers.
“They don’t just throw
their money around,” Tan said. “That’s just their nature. I think people who
are financially successful are financially successful because they are careful
with their money.
“I think the long-term
negative impact definitely outweighs the short-term tax revenue.”
John Boyd, Jr. principal at The Boyd Company Inc., argues that
the tax would be a drag on new development.
A negative impact on luxury sales and new development isn’t the
only concern real estate executives have voiced. At a recent conference hosted
by NYU’s Schack Institute, Bill Rudin argued that wealthy pied-a-terre owners
benefit the city beyond real estate. “You can’t just say it’s foreigners buying
apartments, it’s people who contribute to the city’s economic vitality,” he
argued.
Rudin claimed that many pied-a-terre owners are CEOs of firms
with offices in the city, and whose presence is important for job growth. “If
you dig deeper, it’s a little bit more significant for the well-being of our
city,” he added.
At the same conference, Extell’s Gary Barnett, developer of the
Midtown luxury tower One57, argued that pied-a-terre owners not only create
jobs and generate millions of dollars in taxes by driving demand for
residential construction, but also end up spending money in the city.
While executives interviewed for this article unanimously
opposed a pied-a-terre tax, some conceded that a tax could be designed in a way
that’s less damaging to the city’s economy.
“It depends on how much the tax is going to be,” said Miller
suggesting that there are ways to perfect the strategy and maximize its
revenue-generating potential.
“One of the things that was thrown into this idea is that this
is recurring, this is not a one time, this is an annual tax,” he said while suggesting
that a one-time fee may be more advisable.
Jason Karadus, a broker at TOWN Residential, agreed, saying that
the correct path was likely “somewhere in the middle” but that “an annual tax
is definitely not the answer.”
Either way, Karadus doesn’t see a pied-a-terre tax stopping the
influx of foreign money any time soon. “I think that there will always be a lot
of foreign interest in Manhattan
And New York
The chairman of retail leasing and sales at Douglas Elliman
said, “Similar taxes certainly have not hurt retail in other world capitals,
such as London Paris
“There could be a slight effect because a tax could scare off
some of the wealthy. But the ultra-wealthy will still buy homes here, and
everyone will still find a way to shop here. We simply have too much to ignore.
Others will come in, and make up the difference.
“I’m
not saying it will have no effect, but I’m confident that New York
Wei Min Tan is a Manhattan, New York condominium specialist focusing on investors and foreign buyers. He is often interviewed by top media including CNN, CNBC and The Wall Street Journal. View Wei Min's media commentaries on Manhattan property.
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