Misinformation Monday - Pied-a-Terre Tax

The proposed pied-a-terre tax, which would be paid annually and affect second (or third or tenth) homes worth roughly $5m or more, is a rare thing that put everyone else is in a tizzy while I really have no strong feelings one way or the other.

I see the arguments on both sides, but mainly I think it's part of a greater conversation about structural inequality, what is owed by people who have benefited greatly from the pandemic at the (direct or indirect) expense of others, and what happens when states are able to compete for residents by undercutting one another on cost of living/doing business and taxes.

The thing I do feel strongly about? That misleading press and grandstanding needs to stop. Do not tell me that this tax impacts "middle class" New Yorkers or that it will somehow magically close the budget deficit. Neither is true.

But again, it's a conversation, and the more open -- and honest -- discussion we can have, the more likely we are to find well thought out, useful solutions. 

xo

Anna

What's the Deal?

The pied-a-terre tax, which was introduced back in 2019 but has recently picked up support, would be an annual tax on homes in NYC with an assessed value of $300,000 or more (roughly $5m market value) that are not the owners' primary residence and are not being rented out or otherwise occupied by the owner's family, instead sitting vacant for the owners' occasional use.

How much would it actually cost these owners? I'm going to quote attorney Andrew Luftig here rather than do my own math:

Property Listed for $7 million (market value) with an assessed value of $672,306 - 

$672,306 (assessed value) MINUS $300,000 (pied-a-terre tax doesn’t apply to 1st $300,000) = 372,000 * 10% (proposed tax %) 

= $37,200 a year assuming the legislation implements the proposed tax in its current form.

Of course, it would be complicated because the city would be tasked with figuring out veteran/senior/disability exemptions, whether someone is using/renting the property enough for it to be considered, etc. It's also become a talking point because of the recent blue wave in Albany and the upcoming mayoral race.

In the "for" corner: New York City is facing a $5.25billion budget shortfall; people who own second homes here do not pay for services they use (police/fire/roads/garbage/etc); these homes are vacant for most of the year while over a hundred thousand New Yorkers, including many children, are homeless; these people made money during the crisis while other New Yorkers stood in hours-long food lines.

Representing the "against" side: high-income New Yorkers already pay more than their fair share (although this tax would be levied against a different group of high-earners); it would decrease price on luxury real estate and potentially hurt long-term NY tax revenue; the estimated annual revenue from the tax is far lower than initially stated ($232m annually down from $390m); this is more political spectacle than useful policy.

As I see it? Everyone's kind of right. To some extent all of these things are true. And I think this is why I don't have a strong opinion on the matter.

One other thing I'll add: To anyone who fears that these people selling their homes would cost NYC tax revenue, I'd argue that, in the short term, the sales of these units could actually benefit the state in the form of transfer taxes. Collecting roughly 2% of every sale would get us way closer to fixing the current deficit than a meager annual tax would. There's also little proof that they would actually bail on NYC rather than pay a few extra grand every month.

Why Does This Matter?

Again, because it's part of a larger conversation and debate around wealth disparity, equity, and "building back better." 

We really f*cked up the stimulus because at the time the government was run by garbage monsters (technical term) who still champion trickle-down economics, a model popularized by the Koch brothers, who actually funded business schools to legitimize this laughable, repeatedly proven wrong concept. 

BUT I DIGRESS.

Look, as someone who grew up in Appalachia and has spent eight years living in Harlem, I'm no stranger to the impacts of poverty on communities, whether they're white or people of color. And over my lifetime I have watched the inequality/poverty get worse, especially during the decade-of-a-year that was 2020. We need to do something about it, because this level of inequality is not sustainable. Spend 5 minutes on Gen Z eat-the-rich TikTok and you'll see the ramifications of ignoring the problem. 

So yes, I do think that some people who believe they pulled themselves up by their bootstraps will end up needing to pay more than what they feel is fair. But I'm also not sure that adding this tax will be helpful. Why fuel the narrative that NYC unfairly taxes wealthy residents over a very minimal revenue increase? Seems....bad. Everyone needs to put their egos aside and think, logically and honestly, about what makes the most sense. 

Further Reading/Watching

For more, please check out the links below.

Brick Underground - What is assessed value and how is it used to calculate a pied-à-terre tax? (article)

The Real Deal - Pied-à-terre tax revenue estimate slashed by 41% (article)

WTF, NYC? - Mid-Pandemic Tax Lien Sale

UPDATE: At the 11th hour the sale was postponed.

I have long thought the answer to NYC’s housing crisis, which is increasingly becoming a nationwide housing crisis, is to make the path to home ownership easier. Our over-dependence on rentals, which stems from a larger issue of viewing real estate strictly as an asset class rather than a home, is unsustainable. If we keep going down the monopoly landlord conglomerate root we will be, to use an industry term, fucked. 

But what I find even more frustrating than how hard we make it for people to get on the first rung of the real estate ladder is how we then try to rip people off.  

A well-known example is the type of predatory lending that led to the ’08 housing and financial crisis. Buyers were duped into purchasing homes they could not afford, only to have them foreclosed on and lose their asset, savings, and having to rebuild their credit. Of course they made bad investments, but they did not know what they were getting into, because the lenders were acting irresponsibly. 

Another example that I’ve discussed before is the forcible taking of people’s homes, especially people of color, by burning them completely to the ground (see: Tulsa) or through legal government intervention (see: Seneca Village, Columbia’s campus expansion). 

But there’s another fun way that the government takes homes away from their owners: lien sales. The government will put a lien on your house if you don’t pay your property taxes, a lien if you don’t pay your water bill, a lien if you don’t pay the fines for any violations. Sure, I get it, makes sense in theory. But in practice it’s a huge problem for anyone who isn’t earning a ton of money who lives in an area where home values are increasing. Think about an owner who purchased their home 20 years ago and now lives on fixed income. Although they are likely making the same amount they were before, their tax burden has increased significantly with the home prices in the area. They may no longer be able to pay these taxes AND keep the home in good repair AND pay for all the other utility expenses. Once they get behind on payments there is little chance of coming back — you need to pay everything owed and any interest or late fees on top of it. The situation snowballs.

And don’t get me started on the fact that the hotel lobby has successfully blocked Airbnb from being allowed in the city. I understand the arguments against short term rentals, especially in buildings where you share walls with your neighbors, but you can’t have it all ways. You cannot simultaneously keep someone from using a completely legal service to help pay the monthly costs on something they own, keep raising their costs, AND on top of all this do nothing to fix wealth inequality. If you want to charge women of color who own homes the same taxes that you charge a white man who owns a home, then PAY HER THE SAME AMOUNT. Add to this other elements like racist appraisals keeping people of color from taking advantage of lines of credit or refinancing (or selling at the same price as a white neighbor) and you have a racist system that keeps home ownership out of reach. 

---

So what de Blasio, unsurprisingly, is doing is auctioning off, in the MIDDLE OF A PANDEMIC, the homes of people who are already struggling to make ends meet. The auction is tomorrow, Friday, September 3rd. His justification, that the city just really needs that potential $50m right now, falls flat when you realize the NYPD budget is $11 BILLION and he just approved the budget with that number (despite all the lies claiming that the police were defunded a billion dollars). I truly do not understand de Blasio. He has managed to piss off every single person in NYC regardless of their beliefs. It’s honestly quite impressive. 

Here’s what the city’s website says about the tax lien sale: 

“When you do not pay your property taxes, water bills, and other charges against your property, these unpaid charges become tax liens that may be sold in a tax lien sale.

Each year, the Department of Finance sells tax liens. If your property has unpaid debt that qualifies for a lien sale, we will sell your lien debt (the amount owed) to an authorized buyer. A lien servicing company, on behalf of the buyer, adds more fees and interest to your debt, so it is much better to take care of your debt before we sell the lien.”

And who is going to buy these liens and add said fees and interest? Companies like Blackstone, that will then foreclose on many of them and turn them into rentals. We will be removing more and more New Yorkers from the “American Dream” as we consolidate all our housing stock into a rental portfolio owned by a small handful of companies. Remember the game Monopoly? It was supposed to be a warning, not a playbook for how to run a society. What. The. Fuck. Is. Wrong. With. You. 

Dozens of elected officials have begged de Blasio to remove properties with fewer than 4 units from the sale, and postpone it until after the winter, when we expect to have a surge in COVID. Their please have fallen on deaf ears.

From Channel 11 News: ‘New York Attorney General Letitia James explained those companies can charge homeowners "mandatory 5% surcharges, legal fees and most of all a 9-18% interest rate that compounds daily.”’ 

You cannot come back from that level of compound interest if you already couldn’t pay the liens in the first place. This is forcing people out of their homes in the middle of a pandemic. I don’t have an answer for what to do. This is disgusting, and it’s more of the same.

"The outcome of this process is not a mystery: more New Yorkers, many of whom owned their homes outright or benefitted from significant equity, will lose their homes to foreclosure, depriving them of their single most valuable asset and dramatically destabilizing their lives," the letter states. "Others will be compelled to sell under duress during an undoubted drop in the housing market."

New York, we can do better. 

xo

Anna