New York City's recently implemented tax on second homes, often referred to as the 'pied-à-terre' tax, has triggered significant debate and concern among property owners and real estate professionals. The tax applies to residential properties valued at over $5 million that are not the owner's primary residence.
Critics, such as Jason Haber of the American Real Estate Association, have voiced apprehension over the public release of a list containing the names and addresses of owners of these high-value second homes. Haber stated that this list poses a security risk, potentially exposing individuals to scammers, fraudsters, and those with malicious intent. He suggested that foreign actors could exploit such a list to impersonate city officials and solicit tax payments.
Haber also indicated that some prospective buyers have paused their searches for expensive New York properties due to the new tax, attributing this hesitation to the element of surprise and confusion surrounding its rollout. He further posited that a potential decrease in revenue from fewer high-priced home sales could offset the funds generated by the pied-à-terre tax.
However, this perspective is challenged by Morris Pearl, a former managing director at BlackRock and chair of Patriotic Millionaires, a group advocating for higher taxes on the wealthy. Pearl described the notion that people would cease investing in the city because of the tax as "absurd." He emphasized that individuals owning secondary residences valued above $5 million possess the financial capacity to contribute more to the city's revenue. "Someone who owns a residence that is not their primary residence that's worth more than $5m has the ability to pay more than most New Yorkers do," Pearl said.
Pearl acknowledged that the city administration's approach to releasing the list of wealthy residents might not have been the most tactful. He commented, "I do think that the mayor himself - I have suggested that he sort of unnecessarily antagonizes people occasionally." Despite this, he expressed support for the policy itself.
Internationally, similar taxes on secondary homes are in practice. France imposes an additional charge on homes, with Paris having a local tax surcharge of 60% on secondary residences, generating billions of euros in revenue. Vancouver, Canada, implemented an Empty Homes Tax in 2017, taxing vacant or under-used residences at 3% of their value. Research by the C. D. Howe Institute indicated that this tax has raised substantial revenue and reduced housing vacancies, though it had minimal impact on average rent prices.
San Francisco also introduced an Empty Homes Tax in 2022, requiring owners to pay between $2,500 and $20,000 for apartments vacant for six months or more. However, this tax faced strong opposition from real estate and landlord groups and was later deemed unconstitutional by a judge, remaining in legal limbo pending an appeal. The city of New York has not yet released details on how it will address potential legal challenges to its new tax.
The controversy highlights the ongoing tension between efforts to increase tax revenue from affluent individuals and concerns about privacy, potential economic repercussions, and the methods used to implement such policies. The long-term effects of New York City's pied-à-terre tax on its real estate market and overall tax revenue remain to be seen.