September 22, 2014. By James Parrott, FPI Deputy Director and Chief Economist.


In the context of the continued global concentration of income and wealth, a growing number of ultra-luxury residences in New York City are being bought by people who are not full-time city residents. For many such owners, a Manhattan pied-à-terre is one among several residences they own around the world for occasional use. Some owners see it as an investment, or simply as a place to park a portion of their substantial wealth. The City’s Independent Budget Office notes that in some of the newer luxury residential developments being built in Manhattan, the share of owners who are not primary residents “could approach 50 percent.”[1]

Such non-primary owners are unlikely to be paying New York City personal income tax, and because of the arcane nature of the City’s property tax, or because such units benefit from tax breaks mainly intended to benefit more affordable housing for low- and middle-income residents, chances are they pay a very low effective property tax relative to the real market value of the property. Yet, the high value of their property depends on local tax dollars supporting the infrastructure and public services that contribute to the city’s quality of life and attractiveness.


According to NYC Department of Finance, there are nearly 89,000 coops and condos in NYC owned by persons for whom the unit is not their primary residence. State legislation enacted in 2013 phased out these units from eligibility for the coop & condo tax abatement. The total annual tax savings to the City from this exclusion will eventually be $120 million.

Based on citywide ratios, the estimated “market value” for these nearly 89,000 units is about $20 billion. This is the Department of Finance “market value” estimate based on the assessment method currently mandated by state law that bases the value of coops and condos on the income of comparable rental buildings.

The City’s Independent Budget Office estimates that, based on citywide averages for FY 2012, the DOF “market value” reflects about one-quarter of a sales-based market valuation method. Thus, an IBO-adjusted sales-based market value would be a very conservatively-estimated $80 billion for these 89,000 non-primary resident coops & condos. The true aggregate market-value of such units could be much greater. Owners of pieds-à-terre very likely own units more expensive than the average NYC coop or condo, plus there have been several buildings go up in recent years catering to the ultra-expensive end of the market, with many news stories about units selling in excess of $50 million each.[2]

Proposal to tax high-end pieds-à-terre

  1. Rationale: Non-primary residents do not pay NYC personal income tax and their units are being phased out of eligibility for the coop & condo tax abatement per the renewal legislation enacted in early 2013. These owners bid up the price of NYC residential real estate, and since they don’t spend much time in these units, contribute little to the local economy compared to full-time residents. There are many flaws to the city’s current property tax system, so many of these properties are paying very little in regular property tax to begin with, and some of the most expensive recent developments with ultra-luxury coops have received special tax breaks courtesy of Albany, despite the action with regard to the coop & condo tax abatement.
  2. Apply a graduated 4% tax based on comparable sales-based market value over $5 million. (The following estimates are based on coops and condos only, although the proposal should also extend to single-family homes as well. The Fiscal Policy Institute estimated the number of non-primary resident coop & condo units valued in excess of $5 million—1,556—and estimated the distribution of the value of units above $5 million.)
  3. With the tax starting at 0.5% for the first $1 million in value over $5M, and rising such that the 4% rate applies for the value over $25 million, an estimated $665 million could be generated from the 1,556 coops and condos that have a sales-based market value in excess of $5 million and that are owned by non-primary residents.
  4. Thus, this proposal would affect only 1.75% of all non-primary resident owned coops & condos (1,556 out of 88,851), but these units valued at >$5 million account for a third of the total market value of all non-primary resident coops and condos ($26.1 billion out of $79.9 billion).
  5. The proposed tax is really geared to reach the most expensive pieds-à-terre, those valued at $25M+. There are an estimated 445 such units and they would pay 83% of the proposed tax, i.e., $551 million of the $665 million total. That means an average tax of about $1.2 million for these 445 units. The graduated rate structure means that even these top-selling units would pay an effective tax of only 3.44%. Units $10M-$25M would pay an effective tax of only 2%. Units valued from $5 million to $10 million would pay an effective rate of less than 1%.
  6. The 4% tax could generate more if there are a significant number of non-primary resident owned single family homes.

*    *    *

This proposal was featured in an article by Dana Rubinstein in the Capital New York online news organ on September 22, 2014, “Could de Blasio do a pied-à-terre tax?”


[1] New York City Independent Budget Office, Budget Options for New York City, December 2013, p. 53.

[2] See, e.g., Andrew Rice, “Stash Pad,” New York Magazine, June 29, 2014.