Governor Kathy Hochul has introduced a controversial pied-à-terre tax, initially touted as a solution to New York City’s budget challenges, but it has become a complex issue akin to a Gordian knot.
Amidst a slowdown in private job creation and New York’s ranking as the least competitive state for taxes, the focus has shifted to debates over imposing taxes on luxury second homes, overshadowing discussions on fostering investment and economic growth.
On Thursday, Hochul revealed details of the tax, originally set to target secondary properties valued over $5 million. However, the plan has since expanded to include all second homes with a “market value” exceeding $1 million for the first two years, exacerbating concerns over its potential negative impact.
Currently, New York’s intricate property tax system assesses levies on co-ops and condominiums not based on their sale price, but on a “market value” determined by evaluating rental values of comparable units in similarly aged and sized buildings.
Under New York’s current labyrinthine property-tax formula, levies on co-ops and condominiums are assessed not on the sale price of a unit, but on a “market value” arrived at by examining what units in buildings of a similar age and size would rent for.
But because comparable buildings might include rent-stabilized units, and adjustments to a unit’s property taxes must be phased in gradually, the assessed value of an apartment for tax purposes sometimes differs wildly from that apartment’s actual sale price.
Hence Hochul lowering her threshold to $1 million
She claims that a $1 million “market value” is “equivalent” to a $5 million sale price — which of course can’t be verified unless and until the property is actually sold.
For example, a condo that sold for $18.6 million in 2021 has a “market value” of $2.2 million on which its taxes are calculated.
In two years, her office says, the state will transition to an entirely new system, deploying a yet-to-be-developed additional assessment of pricey condos and co-ops to determine their “potential sale value.”
Those owners would then be hit with a 6% tax hit — every year.
The convoluted process would complicate an already confusing tax system — and would doubtless require hundreds of additional bureaucrats to run.
Even City Comptroller Mark Levine seems dubious that the scheme can work.
Many high-end properties are registered as LLCs, he’s noted, making it hard to identify which would even be subject to the tax.
That and other complications mean the measure will raise far less than the $500 million Hochul has projected, Levine says.
In other words, the tax is just another expensive distraction that’s unlikely to raise a significant amount of revenue for the city — while simultaneously deterring investment.
Since owners of these apartments already pay full property taxes and presumably use far fewer services than full-time residents, the tax might well end up costing New York money by pushing high earners out.
On top of all this, as my colleague Ken Girardin has written, a tax of this kind — based not on the assessed value of a home but on the status of the owner — carries troublesome implications.
That’s not a property tax, it’s an identity tax — and it opens the door to further targeted taxes.
The only way to address New York’s affordability crisis is to encourage investment, in jobs and in new housing.
This boondoggle does neither.
Depressing equity value, as owners try to sell, won’t address housing costs; it’ll just drive investment into other states.
And threatening up to 10,000 construction jobs won’t make New York any richer; it’ll just put more people on the welfare rolls.
It’s time for New York’s leadership to stop the tiresome charade of “taxing the rich” — and get on with actually governing.
Adam Lehodey is an investigative reporter at the Manhattan Institute’s City Journal.