Mamdani and New York Governor Kathy Hochul announced a suggestion Last week, a tax was introduced on pieds-à-terre (homes owned by people whose primary residence is outside the city) valued at more than $5 million. Hochul predicts this could increase $500 million revenue annually helps close the city’s budget deficit and funds new affordability measures. offer already sparked immediate reaction From business leaders and right-leaning politicians.
It makes sense that the proposal would indeed tax the rich; this is a signature policy position of Mamdani that Hochul had previously resisted in broader ways.
While New York While it has flirted with such measures before, other cities from Vancouver to Berkeley, California, have enacted similar taxes. These policies are often designed to bring vacant housing back to the market and increase income in the process.
New York City’s situation is different.
Vacancy rate is close to 1 1.4 percent, the lowest level in 50 yearsand the new tax will only apply to the approximately 13,000 affected units. This eliminates the possibility of adding meaningful housing supply as has happened elsewhere.
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Rita Jefferson, a local analyst who focuses on equity and justice at the Institute on Taxation and Economic Policy, said New York’s tax appears to be focused primarily on increasing revenue from ultra-rich upstate homeowners.
“It’s possible some new units will come on the market as a result of this, but I would bet it would have to be a tax generator,” Jefferson said. “The demand is so high that people who can afford more are willing to pay what they need to live where they want.”
The projected revenue would cover only a small portion of the city’s budget deficit.
“$500 million is a good start,” said Emily Eisner, acting managing director and chief economist of the Fiscal Policy Institute. “It’s only 10% of the budget deficit that we’re looking at in the city, but it’s a good start to generate additional revenue to try to meet the needs of the city.”
New York will join a handful of US cities targeting vacant homes. Berkeley’s $3,000 vacancy tax generates about $3.9 million to $5.9 million a year. city attorney’s analysis.
And in 2011, Washington D.C. implemented a tax on vacant and dilapidated properties of $5 per $100 of assessed value of vacant properties. That tax was reflected on him too own implementation issuesincluding incomplete data reports and too many exemptions; these administrative difficulties may have cost the city approximately $1 million in potential revenue. Buildings examined By the District of Columbia Comptroller’s Office.
In San Diego, residents will vote in June on a vacancy tax that would reach $10,000 per unit annually. San Diego Independent Budget Analyst Office estimates the measure It could generate revenue between $12.1 million and $23.8 million in its first year.
Other countries have their own versions of a vacancy tax, providing a reference point for the long-term effects of the proposal.
A vacancy tax has been applied to second homes in France since 1999. 2020 study It can reach 34 percent of the tax, published in the Journal of Public Economics. rental value of the propertyIt led to a 13% drop in the vacancy rate from 1997 to 2001, with most vacant residences becoming primary residences.
The tax, implemented in Vancouver in 2017, targeted homes that were vacant for more than six months a year. The number of vacant homes in Vancouver dropped from about 8,000 in 2017 to about 5,000 in 2023. Institute on Taxation and Economic Policyhowever, this reduction is not necessarily a direct result of the measure.
The tax coincided with a decline in the vacancy rate from approximately 7% in 2016 before its implementation to approximately 5.5% in 2021; This means a “significant reduction” in vacant homes, according to the Canadian think tank. C. D. Howe Institute. According to ITEP, the tax, currently 3% of the vacant home’s value, raised $202 million in Canadian dollars; This corresponds to approximately 1% of the city’s total tax revenue.
C.D. Howe found that the new tax did not limit new construction nor did it reduce the average rent. IT push back Some of the rich homeowners in Vancouver are also They rent their mansions They rent them out as rental units and sell them cheaply to avoid taxes.
This tax likely won’t bring affordable rental units to the market, but it could cause some homeowners to think about how they actually want to use their housing or whether they want to buy in the city, policy analysts who spoke with Business Insider in New York City said. If the owners decide to sell, this could be another tax benefit because the municipality will collect a property transfer tax.
“This is a small step toward increasing taxes on the rich, but it is important,” Eisner said.
