Will a Tax on Ultra-Expensive Second Homes Destroy New York’s Real Estate Market?By
New Yorkers who dislike the tall, slender buildings rising over Central Park have watched, powerless, as projects such as luxury condominium tower One57 grows toward its planned 90 stories. The area just south of the park is zoned “as of right,” which means buildings in the zone have no height restrictions. Opponents have essentially no option but to try to shame the developers into scaling down their projects, and that hasn’t worked.
Now they have a powerful ally. The Wall Street Journal reports that New York City Mayor Bill de Blasio is considering what has been described as a pied-à-terre tax on wealthy people, many of them from outside the U.S., who spend tens of millions on condos in these buildings: “The tax of up to 4% a year would apply to all apartments and homes with a current market value of more than $5 million, and would exempt the primary residences of New Yorkers.”
To hear people in real estate tell it, this will not make it impossible to build any more of these towers—it will destroy the residential real estate market. In short, it will be Armageddon.
Obviously, real estate interests are being hyperbolic. There are plenty of people who will buy expensive apartments in the city and live in them full-time. But such a tax could cause problems for tower builders. It’s one thing for a billionaire, foreign or domestic, to put down $50 million on an aerie in the clouds above Central Park. It’s another for them to shell out an additional 4 percent in monthly real estate taxes.
If nothing else, they may not want to pay as much upfront for these places. Reduced demand could make some builders reconsider their plans. That would be good news for those who fear that the skinny towers will blot out the sun in Central Park, one of the city’s most revered public spaces.
The political calculation for de Blasio is complex. Foreign billionaires don’t vote in the city; the opponents of those buildings do. Then again, developers contribute a lot more at election time. If you look at the Manhattan skyline, you can see who usually wins these battles.