NYC ‘Mansion Tax’ Would Hit Humble Homesteads

Hans Pennink/AP Photo

Only in New York City could a proposed tax on homes that sell for $2 million and above apply to an 887-square-foot studio apartment.

Mayor Bill de Blasio on Monday proposed a so-called mansion tax of 2.5% on homes of $2 million or more to help generate money for affordable housing in the city.

Critics contend the price threshold for mansions in New York, especially in the pricier precincts of Manhattan and Brooklyn, should be far higher.

The average sale price of a Manhattan apartment, for example, surpassed $2 million for the first time in 2016, according to CityRealty, a New York property-tracking firm.

“With $2 million you can get a nice two-bedroom,” said Joan Kagan, sales manager at TripleMint, a real-estate brokerage. “When you think about a family with children who wants to stay here for a little bit of time, they’re the ones that are going to be affected by the tax.”

Some $2 million apartments are even more modest. There are six studios available for sale in New York priced at $2 million or more, according to StreetEasy, a real estate listing site. They include a $2.25 million condominium in the Plaza Hotel just off Central Park. The “oversized studio,” as the listing describes it, is 887 square feet.

The mansion tax measure would need to pass the Legislature, including a Republican-controlled Senate.

The mayor proposed a similar tax a couple of years ago as part of reforms to the city’s tax abatement for new real-estate development. At the time the Real Estate Board of New York said it didn’t oppose such a tax, which failed to gain momentum.

Alicia Glen, deputy mayor for housing and economic development, said the administration hopes to get various interest groups on board this time, citing the changing political climate in Washington.

“In light of what we know is going to be a pretty tough budget situation and politics coming out of Washington with respect to affordable housing and public housing, we have an obligation to fight tooth and nail to identify resources for our housing agenda,” Ms. Glen said.

“New York City has one of the highest transaction tax costs in the country. An additional tax like the one proposed will suppress sales activity and lead to lower tax revenue for the city,” said John H. Banks III, president of the board.

The tax proposal comes amid a growing backlash against luxury real estate in cities from Vancouver and Los Angeles to London. Vancouver last year introduced a 15% tax for foreign home buyers that has caused sales to plunge.

“The concept of raising taxes this way is always attractive to politicians, but the reality requires not that much in the way of study: simply look to London to see how these additional taxes buy votes, but produce significantly reduced sales activity—and thereby lower tax revenues as well,” Leonard Steinberg, a real-estate broker at Compass, wrote in an email. “Enacting this new mansion tax would be fiscally reckless.”

Ms. Glen dismissed criticism that the tax will penalize those looking to purchase what essentially amounts to a Manhattan starter home. She noted that just 8.5% of residential transactions across the five boroughs crossed the $2 million threshold in 2016.

“Does that mean that 8% of the world are buying starter homes? As a factual matter, that’s a ridiculous statement,” she said. “If you look at how much money we’ve left on the table for the past two years while this thing went sideways, it makes me nuts.”

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