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Real Estate, Urbanized, News

New York City considering its own version of Vancouver's empty homes tax

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Kenneth Chan Mar 26, 2019 2:43 pm

There is growing momentum to enact a new tax on real estate in New York City that would target upscale homes that are not the primary residence of the owner.

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Legislators are close to passing a new annual tax on secondary homes worth more than $5 million, earning the tax measure the name of the “pied-à-terre tax.” The assessed value of these properties would be taxed at a rate of between 0.5% and 4% each year.

Local officials estimate at least $650 million would be raised every year from the new tax, which would see much of its revenues directed towards performing much-needed repairs to NYC’s subway system.

Last year, it was found that the extensive, ageing subway required $40 billion in deferred maintenance work over the coming decade in order to prevent the system from falling into a “death spiral.”

The Wall Street Journal reports the tax would have the most significant impact on residential properties worth north of $25 million, with these properties potentially seeing drop in value of about 46% on average if the tax is implemented. Properties worth between $20 million and $25 million may see a drop in value of about a quarter.

Just like in Vancouver, the real estate industry has come out against the new tax measures over concerns it would lead to a collapse in NYC’s luxury real estate market.

Based on the publication’s analysis, a home with a value of $41 million could see $1 million in additional taxes annually.

Half of the revenue generated would come from just approximately 300 luxury properties.

As of 2017, it was estimated NYC has about 75,000 secondary homes, of which 5,400 were sold for over $5 million or more.

According to The New York Times, momentum for the tax grew after the recent sale in NYC of a four-storey, 24,000-sq-ft penthouse, unfinished and unfurnished, for a staggering $238 million, which is billed as the most expensive residential sale in US history.

Numerous local news reports on NYC’s proposed tax have cited the City of Vancouver as one of the large global cities that have recently added or increased taxes on secondary homes.

“Housing sales around Vancouver, British Columbia, which recently adopted several new taxes on non-resident buyers and the owners of empty homes, declined by more than 30 percent in 2018, according to the Real Estate Board of Greater Vancouver,” wrote The New York Times’ editorial board, in support of the tax.

“Yet that decline could also have been caused, or exacerbated, by rising interest rates. Vancouver officials said they expected one of the taxes, a 1% levy on vacant homes, to raise $38 million annually.”

The provincial government’s speculation and vacancy tax — supplementing Vancouver’s Empty Homes Tax — will come into force at the end of this month, when declarations for exemptions are due.

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