OPINION:
New York Mayor Zohran Mamdani faces an uphill battle balancing the city’s budget while ushering in his very expensive socialist utopia. But rest assured: New public bathrooms and free opera tickets are still coming, and the ultra-wealthy will foot the bill. Or so the plan goes. Predictably, his “tax the rich” mantra is already going beyond New York socialites.
With the pied-à-terre tax implemented in July, property owners and investors who simply maintain a secondary residence in one of the city’s boroughs are subject to a new property tax surcharge. New York Gov. Kathy Hochul proposed it on April 15 to help close the city’s budget gap — the same day Mr. Mamdani posted a video outside Citadel CEO Ken Griffin’s $238 million penthouse, naming him as an example.
The legislature approved the measure on May 27, and it took effect on July 1. It expires June 30, 2031, unless renewed. In the first phase, which runs through mid-2028, condos and co-ops valued at $1 million or more face new, steep tax rates of 4% to 6.5%. For context, New York state’s average effective property tax rate in 2024 was 1.3% and Manhattan’s was 0.71%.
People were interested in these podcasts
Mr. Mamdani’s “fair share” philosophy includes a quintupling of property taxes on thousands of people. After that initial phase, the surcharge threshold rises to $5 million with lower rates of 0.8% to 1.3% applying to all non-primary residences, exempting housing units under arm’s length leases of at least one year.
Even these lower rates will double people’s property taxes. Furthermore, the lower rates are designed to be offset by new valuation methods being cooked up by the city Department of Finance to increase the assessed value of properties.
The rollout was messy from the start, when the city published a list of 900,000 high-value properties along with many of the owners’ full names. The city appeared to adopt a kind of guilty-until-proven-innocent tax liability, making residents argue they aren’t subject to the pied- à-terre tax. Owners were left with confusion and a loss of privacy.
Since Manhattan has roughly 16,700 condos and co-ops valued above the $1 million threshold, it will be hit hardest by this tax. Secondary residents will owe an average surcharge of $68,559 each year. Brooklyn also shows significant exposure, with the outer boroughs coming in at smaller counts.
New York projects the measure will raise about $500 million in annual revenue. But that assumes the owners stay. Revenue could easily fall by tens of millions of dollars if some owners leave and sell off their secondary residences, which is why wealth taxes elsewhere have repeatedly fallen short of projections. Each property owner who leaves the city shrinks the tax base.
Ultimately, this is a tax on investment in New York real estate with ramifications that will affect even middle-class New Yorkers. Picture a wealthy Californian considering a second residence on the East Coast. At Phase One’s top condo rates, a unit in Manhattan with a $5 million assessed value — the median Manhattan residence is more than $1 million — now has an extra $262,500 tax bill, simply because his primary residence is elsewhere.
Suddenly, Cape Cod and Miami look a lot more attractive, so the wealthy begin taking their spending elsewhere. Local businesses lose sales and need fewer employees. The Real Estate Board of New York argued before the State Legislature that the surcharge would discourage development, reduce construction jobs and drive high-end buyers to other cities.
Supporters argue the tax discourages luxury units from sitting vacant, hence the one-year-lease exemption. But that’s not where New York’s housing crisis is. Very few people can afford $5,000 a month for a one-bedroom apartment downtown. Filling a few luxury units won’t change that.
Legal fights are well underway, and while a Staten Island judge called the rollout “arbitrary and capricious,” the process was ordered to be redone, not canceled entirely. None of the legal challenges has succeeded in striking down the tax itself.
Part-time residents already pay taxes to fund city services, and these surcharges will incentivize those folks to leave, reducing revenue from the surcharge as well as existing taxes. As the more mobile wealthy flee for greener pastures in low-tax states, the burden of funding Mr. Mamdani’s socialist utopia will increasingly have to fall on the less mobile middle class.
• E.J. Antoni, Ph.D., is a senior fellow at Unleash Prosperity and chief economist at The Heritage Foundation. Annie Heim is a research assistant in Heritage’s Institute for Economic Policy Studies.
Please read our comment policy before commenting.