Somehow, I mostly floated through 2020 without a serious stress level of any kind. There were plenty of obstacles that would have proven worthy of stress, to be sure:
- A total shutdown of the market
- A complete lack of transactions to help price units coming to market
- Reluctance on the part of buyers to “catch a falling knife” aka buy then see the market value go down further
- Never ending pounding of the drum on the part of the Press that EVERYONE WAS FLEEING
- Kids in and out of zoom
- Wearing Mittens and more for every meal out. How to use your frozen fingers?
- Never having enough comfy pants for work from home.
- You or your loved ones catching and/or dying from COVID-19. Almost forgot that one.
Shall I go on? And yet, let’s say that I really took it all in stride. We launched some great initiatives like the Spring Clean Challenge. We did our part to stay “cheerleader” to the brokerage community with videos, suggestions, and the like. We meditated! I wrote music! We ran- a LOT.
But now? Just as the market seems to be getting its footing, as the light is at the end of the COVID tunnel- what I see here is probably making more nervous than anything I’ve seen so far. And it’s entirely SELF-INFLICTED.
Albany is considering the mother of all dumb taxes: The Pied-a-terre tax. You can read about it here. Just to be clear, this only impacts those who don’t use their apartments as their primary homes.
People aren’t living here because the taxes are low, but people currently do not have to pay an EXTRA annual tax just because their second home happens to be in New York State. Will it impact every hamptons house? Or can they JUST target the city? It’s nuts! In short, if you don’t use a particular apartment/house as a primary residence, not only do you ALREADY pay 17% higher real estate taxes, but on any apartment valued higher than $3-4mm, you’ll likely pay in the range of $10-30k per year in extra taxes.
How can this NOT impact the market? The part of the market that is the MOST discretionary, meaning the segment where buyers have the MOST freedom to choose- this part will choose NOT to buy here.
And by the way, even if it doesn’t hit every home (which is WON’T- see here), the bad PR, the stench of this tax, will pervade anyway. Bad rumors are psychologically damaging to any market, especially one just starting to get a floor. Think wobbly baby deer.
While the pied-a-terre tax will hit properties above a certain level, you never know when it starts hitting more properties- and the cascade of bad continues. Just like the revised mansion tax crushed the market in 2019 at the high end, this will make a huge dent.
Here’s what replaced the flat 1% mansion tax over $1mm purchase prices:
NYC Mansion Tax Rates in 2021
- 1.00% for purchases $1,000,000 to $1,999,999
- 1.25% for purchases $2,000,000 to $2,999,999
- 1.50% for purchases $3,000,000 to $4,999,999
- 2.25% for purchases $5,000,000 to $9,999,999
- 3.25% for purchases $10,000,000 to $14,999,999
- 3.50% for purchases $15,000,000 to $19,999,999
- 3.75% for purchases $20,000,000 to $24,999,999
- 3.90% for purchases $25,000,000 or greater
Let’s not forget that with fewer sales, not only will it generate less tax revenue from the NEW tax, but the old taxes will also generate less revenue: Mansion Tax revenue will be lower, as values go down, so will taxes too.
As time passes, more articles will come out showing that less and less revenue will be expected from the tax. Like this here.
I know that we’re coming out of the pandemic with plenty of issues to face. But at a time when nearly anywhere you look you’re expecting higher taxes to balance budgets, all discretionary purchases are already being considered with a wary eye.
I just don’t understand how this is the tax that is on the table RIGHT NOW. How about we let the market recover? Let people take money out of the stock market (and pay capital gains on it), and spend some on real estate. Let the city get a decent mayor first. THEN start tackling new taxes. Doesn’t that make more sense? Maybe it would be more palatable. Instead, they’ll scare buyers out of the market and damage what is shaping up to be an insanely great 2021 already.
One disclaimer: This pied-a-terre tax is not a fait accompli, but it’s never stood a better chance of passing than today.
By the way, I’m NOT running for mayor or governor anytime soon, but gosh does it seem like we need some clearer-eyed thinking today. Maybe some meditation, too. Definitely some Seed & Mill Halvah.