New York passes pied-a-terre tax

Property tax is the workable wealth tax. There's no such thing as a perfect policy, but in the context of NYC this seems worth trying. I'll be interested to see if it helps create some liquidity in the housing market (the goal), or if it only functions as revenue source.

One wrinkle I haven't heard much discussion of -- cities respond to incentives too. NYC is a global destination for the mega wealthy. If it turns out the uber-rich don't mind paying and this becomes a cash cow for the city, that creates incentives for the city to cater to them and try and get more uber-rich people to have second homes in the city.

> While the tax seems large, experts say the city’s antiquated assessment and valuation system dramatically undervalues properties, reducing the burden. City valuations can often be 10% or less of the true market value, they said.

I heard about a system for this that struck me as brilliant. Make someone declare the value of their property. Then the government has the choice of taxing them at the scheduled rate, or buying the property from them, for that cost.

TADA.

And if someone wants to artificially inflate the value of their home, to reflect the difficulty of moving out, finding a new secondary residence, etc, then that's their business. No worries. We'll tax that additional value, no problem.

I think this system goes back thousands of years. Why not use it?

> New York City’s new tax on second homes will more than double property taxes owed by many wealthy luxury apartment owners, according to tax experts.

> State lawmakers on Wednesday passed the tax on nonprimary residences in order to help close the city’s budget gap. The so-called pied-a-terre tax will be imposed on second homes valued at $1 million or more. It’s expected to raise $500 million in revenue.

> Details on the tax obtained by CNBC show that the property tax would take effect in two different phases. In the first two years – the tax years 2026-2027 and 2027-2028 – condos and co-ops valued at more than $1 million by the city’s Department of Finance will be subject to the tax. Properties worth between $1 million and $3 million will face a 4% annual tax; properties valued at $3 million to $5 million will face a 5.25% tax; and those above $5 million will face a 6.5% tax.

The rates sound a bit steep (although I'm not familiar with the baseline tax rates on properties of that value) but the principle is sound. In the UK, the equivalent tax on housing is council tax, and local councils in Great Britain (but not Northern Ireland) are empowered to double the rates of council tax on second homes.

On unoccupied or secondary residences specifically, not on wealth overall. This is more of a housing policy?

Probably the least complicated tax law. Increase taxes to increase revenue. Makes sense. Align valuations with reality while maintaining relatively constant absolute tax dollar amounts. Also makes sense. It's really not that hard.

As a New Yorker I'm thrilled. LVT/Landlording Tax next pls :)

Edit: Actually, as a property tax of nonprimary residences, is this not also effectively also a Landlording tax? Will my landlord's tax bill go up because he's not residing in my building, if my building is above the threshold assessed value of $1mm? Or are >$1mm "multi-family homes" (significant % of housing of New Yorkers in BK/Queens) exempt and this only applies to condos?

It's a good thing to try, we'll see what happens. It's interesting to see the CEO immediately threatened to pull jobs and move them to Miami. That's to be expected to some degree. The way it works that sometime a small hike is enough to trigger the behavior. It could be in protest or as a sign of more tax hikes to come.

This is also some opportunity for intra-state and intra-city arbitrage where random cities and states lean into the controversy and start offering tax incentives for the "sad" and "offended" egos of wealthy of NYC to move there. That often happens to companies, where states, sometimes down South offer such "deals" to move company headquarters from higher tax states up North.

But at the same time, this might encourage some wealthy people who "fled" to Florida to return back and make New York their primary residence.

I also see slew of loopholes popping up, couples divorcing so each can claim on of the residences as "primary"

What's to stop them from selling to a holding company so that it's not literally his own second house?

Against all new tax. It's spent too inefficiently. Why does there need to be more New York Learing Centers. Would you keep adding buckets of water into a leaky boat or try to patch where it's leaking first?

>“All my clients already feel like they pay too much,” Pollack said. “These numbers are significant. I don’t care how wealthy you are.”

If that argument holds up in court, we are all screwed.

Interesting system to compare here in Switzerland. They've never had a property tax. However they did have a tax where they calculate the putative rent you could get for your property and tax you on that income (that you don't really have). So basically a property tax.

But they just repealed that system so no more property tax but you can also no longer deduct mortgage interest from your taxes. So now the system favors people that don't have loans.

That with laws against foreigners buying property (most of Switzerland - not in some economically under devised areas though) the hope is the cost of housing will go down.

Interesting. A $3m house is often valued at $300k so this is actually narrower than one would think. https://www.zillow.com/homedetails/62-Beach-St-APT-2F-New-Yo...

Wild that there are so many rich people in NYC. Truly an engine of wealth creation.

>While the tax seems large, experts say the city’s antiquated assessment and valuation system dramatically undervalues properties, reducing the burden. City valuations can often be 10% or less of the true market value, they said.

>Rather than overhaul the system immediately, the city will gradually update valuations – and the tax – according to the budget documents. Starting in the 2028-2029 tax year, the property values will be based on comparable sales. Since valuations will skyrocket, the tax rates will fall to compensate.

Hold on a second. Reading between the lines, this means everyone's property taxes are going up, right? Because the valuation system is being revised to more accurately reflect resale value.

Obviously this would affect more expensive properties more. But I havent seen anyone acknowledge that everyone's taxes will increase. Is that because I have the details wrong or because it's just flying under the radar?

If this has a problem, it's the difficulty of application: 2nd homes, and only if you have X amount of money, instead of just a flat increase. Property taxes (or really, in NYC land taxes, as most of the property tax is really the value of the land) are just very efficient, and make much less of a difference on the price of rents than you'd think.

Unfortunately, doing that is very unpopular. Unpopular enough that we see states trying to get rid of property taxes, and those providing limits to increases, which basically guarantee misallocation and rising prices. But what is economically reasonable and what the voters like have very little to do with each other.

They would probably be better off fixing how they asses the value of condos. Which, AIUI (and one have a good explanation?) is based on imputed rent, capped at the rent of the closest example they can find. So no condos get taxed more then the most expensive rental (I could have this wrong).

I'm really curious about this. Wont, as a rule, any super-rich 2nd, 3rd, and 4th homes in New York be completely unaffordable for almost everyone? It feels a bit like you're potentially spreading around the super-luxury homes across a wider breadth of the super-rich, but not much else.

Is there a better way to think about this?

For all the fear-mongering the media-zeitgeist tried to stir up about Mamdani's NYC mayoral campaign, I find his policies measured and fiscally responsible. A second mansion in NYC does seem excessive, and the tax could free up supply. The tax rate isn't outrageously high, if I'm wealthy enough, I'll just pay it, otherwise if I'm on the cusp, maybe it's better to sell and liquidate. Feels like a Keynesian policy at its finest.

This seems like a no-brainer. Tax 10-15k ultra wealthy people who park their cash in second homes in exchange for ~$500M/year in revenue.

…=

I think this is in the right direction, but the cut off at $1M is interesting.

Why's there an obsession with the $1m cutoff?

The dollar has been turned to dust. $1M is not that much money, especially in housing, especially in NYC.

Why tax $1m second homes and not second homes generally? Effectively, you're going to tax almost all second homes.

So why the arbitrary cutoff?

Chicago wanted to add a "millionaire's tax" on $1m+ home sales. At least in Chicago, that isn't effectively taxing the vast majority of housing (and total value) - so there's some distinction worth having.

This is fantastic news for the Miami real estate market. Does anybody has stats as to how many homes this would actually affect?

Dumb question - what about corporations (or charities?) that own homes? Are they automatically "second homes", since a corporation has no primary residence?

Are we going to see things classified as not-residences, but then people can vacation there anyway, much like Mar-a-Lago supposedly cannot be a residence, but apparently President Trump lives there and votes there, anyway?

As I understand it many of the very wealthy do not "own" properties directly but control LLCs that do. The chain of trust/LLC ownership can be complex. Also as I understand it, this legislation does not really answer that call effectively -- though I have, of course, not read the full legal text myself.

I suppose in Ken Griffin's case, even if his residence is owned by an LLC he controls, he is known to reside in it. But how effective is this legislation when the purpose of LLC ownership is expressly anonymity and accounting convenience?

I support this. The purpose of a home is for people who live in the area to live in, not to be a speculative investment.

This is part of the reason we have a housing shortage in the US: 20% of available homes are purchased by investors, which squeezes the supply.

Airbnb has made this worse. There are areas near me where during the COVID ZIRP, people snatched up like 70% of the homes to turn into rentals. Those places are now ghost towns, unless it's Memorial Day weekend.

If you want to tax the ultra-wealthy, prevent Securities-Based Loan (SBL) or a Securities-Based Line of Credit (SBLOC). Honestly this is how EVERY SINGLE wealthy person gets around paying taxes.

Stocks should be bought and sold, period the end. That is how the market is supported to work.

If you closed this simple loophole, you would see a massive amount of tax revenue.

The wealthy are very easy to tax. They possess a lot of assets. Really, all of them should be taxed progressively, like shooting fish in a barrel.

Flagged misleading editorialized title.

Actual title is "New York passes Mamdani’s pied-a-terre tax"

$ have to come from somewhere, with the Fed cutting taxes for the rich and benefits for the poor every other term, time for the states to take over.

“It always seems impossible until it's done."

Actual title from the article:

> New York passes Mamdani’s pied-a-terre tax. Here’s who pays and how much

(The submitted title at time of commenting is "New York Passes Tax on the Ultra-Wealthy)

It's a tax on second homes. If you thought it was a wealth tax from the editorialized title, like I did, that's not correct.

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Surpriosingly sane idea suddenly

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Why tax the middle class within $1m-$5m. The tax should only apply to upwards of $10m. This is wrong.