Photo illustration of Senator Brad Hoylman advocating the Pied-à-Terre tax. (Getty)
A tax on luxury second homes in New York City would generate far less revenue than expected, an agency tasked with cracking numbers for lawmakers has found.
The independent budget bureau tacitly cut its revenue estimate for the proposed pied-à-terre tax this month by 41 percent.
The IBO now estimates that the tax would generate $ 232 million annually, compared to $ 390 million a year it was forecast on Dec. 1. George Sweeting, deputy director of the IBO, said the agency had realized far fewer homes than originally thought would be considered pieds-à-terre worth $ 5 million or more.
He noted that the numbers are not final and that there is “a lot that is unknown”.
The IBO is a non-partisan city agency that estimates the budget numbers for the city, including the savings or income that would be generated by the proposed actions. The city must close a $ 5.25 billion deficit, Mayor Bill de Blasio said last week when he proposed a budget of $ 92.3 billion for the year beginning July 1.
Any tax on second homes would have to be waived under state law.
The pied-à-terre tax, championed by Senator Brad Hoylman, D-Manhattan, would increase annual property taxes for one- to three-family homes with a market value of $ 5 million or more, as well as for condominiums and cooperatives an estimated value of over $ 300,000 if the property is not a primary residence.
The annual tax, considered by state lawmakers but excluded from the budget passed last March, would be between 10 and 13.5 percent of the estimated value for condominiums and cooperatives and between 0.5 and 4 percent for income until three-family houses are. with more expensive properties taxed at the higher rates.
The real estate industry firmly opposes the tax, claiming it will drive luxury buyers away, dampen future development, cut jobs and lower home values. In recent months, industry-led lobby groups have been formed to mobilize members such as real estate agents, unions and homeowners against the bill.
One such group, the NYC Homeowners Coalition, which includes the New York Real Estate Board and 32BJ union, said the downward revision did not surprise them.
“We knew all along that the numbers they came up just didn’t make a lot of sense,” said Stuart Saft, partner at Holland & Knight and chairman of the NYC Homeowners Coalition.
The coalition estimates the tax will cost the state $ 430 million annually in lost sales and development revenue that would be deterred by the new levy. If the coalition’s forecast is correct, it would mean the tax would have a net loss of $ 198 million per year.
“It won’t help the state financially,” said Saft.
Supporters say this would slightly lower the selling price of a few thousand properties that owners could easily afford, and that the vast majority of second homes would not be affected. According to the IBO’s Sweeting, the agency’s calculations assumed the tax would slightly reduce demand for expensive second homes.
The proposal for an annual pied-à-terre tax has been around for years, but received new impetus in early 2019 after hedge funder Ken Griffin bought a sprawling residence in 220 Central Park South for an impressive $ 238 million he would pay an estimated $ 516,000 in property tax as of this year.
The purchase again drew attention to the city’s troubled property tax system, and when the state looked for additional sources of income in the spring, Hoylman’s long-dormant bill for an annual pied-à-terre tax became a key issue.
The bill was dropped after the challenges of introducing the tax – especially what to do when co-op owners fail to pay – proved too burdensome for lawmakers, but Hoylman hasn’t given up.
The senator said the bill would be a “priority” in the state’s 2021 legislature.
When asked about the IBO’s downward revision, Senator Hoylman said the revenue would still be better than nothing.
“A [pied-à-terre] The luxury second home tax would add $ 232 million in additional revenue to New York City that it no longer has today, ”he said in a statement. “Given the shortfall we are facing right now, it is not inappropriate to ask those who can afford to buy a multimillion dollar second home in New York City to pay a little more to support our U -Keep railways and schools running. “
Contact Erin Hudson