New York City is filled with pieds-à-terre, apartments purchased as non-primary residents that are left vacant for most of the year. The Census Bureau’s 2012 American Community Survey found that 57 percent of co-ops and condos in Midtown, (from East 56th to 59th Street between Park Avenue and Fifth Avenue), are unoccupied for roughly ten months of the year. These half-vacant buildings include Trump Tower at 721 Fifth Avenue, the Plaza’s condos, 15 Central Park West, and One57, which are all exclusive and luxury residences. Who is buying expensive New York real estate and not even renting out the units? For the most part, the absentee owners are wealthy foreign buyers.
This is reinforced by The New York Times’ study of owners who take advantage of the City’s property tax abatement for primary resident-co-op and condo owners. For some of the buildings discussed, only about one-third to half of residents claimed the tax benefit. It follows, then, that in those buildings, half to two-thirds of units are purchased as second homes. Unfortunately, these non-primary homeowners are not paying income tax and are only paying property tax. Therefore, they are not contributing to the City, specifically to infrastructure, in the same way.
As a potential solution, New York Senator, Brad Hoylman, proposed a pied-à-terre tax for non-primary residents. The people who can afford to purchase these units are typically in the “top tax bracket … non-primary residents are just paying property taxes, and the effective property tax rates are so incredibly low.” Sal Albanese, the democratic mayoral candidate, has proposed that the City use revenues from a pied-a-terre tax to fund affordable housing projects. Albanese argues that this scheme could generate billions of dollars in tax revenue, which will benefit New York residents. However, the Fiscal Policy Institute forecasted that under Hoylman’s proposal, the tax would produce around $665 million in tax revenue.
Critics have asserted that such a tax may create uncertainty in New York’s luxury real estate market. John Burger, a broker at Brown Harris Stevens, commented under Hoylman’s proposal that a pied-à-terre tax “could potentially jeopardize Manhattan’s position as the leading international safe haven for blue chip real estate investment.” There are also potential legal implications, as it could be construed as discriminatory to impose an additional tax on non-primary residents only, and it may violate the interstate commerce clause (Article 1, Section 8, Clause 3 of the U.S. Constitution ) by treating buyers from different states or nations unequally. However, if Albanese (if elected as mayor) came up with a stronger proposal that neither discriminated against non-primary residents nor created negative fluctuations in New York’s luxury real estate market, the scheme has potential to solve a number of the City’s affordable housing and infrastructure problems. Albanese would need to clearly address how much funding is necessary to strengthen these areas and what percent can realistically come from pieds- à-terre.