Submitted by Michael Krieger of Liberty Blitzkrieg blog,
In July, I published a post titled, Introducing Ghost Skyscrapers – NYC Real Estate Goes Full Retard, in which I highlighted many of the current absurdities characteristic of Manhattan real estate. Of all the points made, the most striking statistic from the piece is the fact that:
“The Census Bureau estimates that 30 percent of all apartments in the quadrant from 49th to 70th Streets between Fifth and Park are vacant at least ten months a year.”
There is absolutely nothing healthy about this reality. As someone who grew up less than a mile from that quadrant, I can tell you this is very negative for NYC’s long-term vibrancy. Sure, while the boom is happening and global oligarchs are parking some of their savings in newly built glass towers, you’ll get jobs, construction and sales; but when the boom stops, and it always does, all you’ll be left will are empty multi-million dollar boxes that no one can afford. When such a high percentage of properties are built solely to serve as bank accounts, and not a space to live in, you’ve got a severe case of malinvestment on your hands.
For quite some time, I have pointed out that many of these oligarchs will ultimately rue the day they made these investments. It always seemed obvious to me that once the billionaires had their fill they would become a captive milk cow for local governments. When you buy a $20 million dollar home in NYC, and the market starts to cool even a little, there is no getting out. You are completely stuck and then it will be time to come collect. No one will feel sorry for you. No one will care. If you are an oligarch and you didn’t see this coming, I don’t know what to tell you. The pied-à-terre tax is now on the agenda in New York City.
From Bloomberg:
The real-estate industry is mobilizing to kill a proposed levy on non-resident owners of apartments valued at more than $5 million, seeking to ensure the world’s biggest city doesn’t follow London, Hong Kong and Singapore in extracting extra cash from trophy properties.
The industry’s lobbying arm, the Real Estate Board of New York, says the measure will scare off investors who fuel a business supporting more than 500,000 jobs and generating 40 percent of the five boroughs’ revenue. Brokers warn of economic calamity if officials slap a luxury tax on apartments owned by someone who lives in the city less than half the year.
If a malinvestment boom in ghost skyscrapers is necessary to generate 40% of the city’s revenues, you boys have way bigger issues than this tax.
“The first e-mail I woke up to yesterday was from a gentleman about to sign a $25 million contract who said, ‘I’m not signing this until I understand better what the implications are of this new pied-a-terre tax,’” Pamela Liebman, chief executive officer of the Corcoran Group brokerage firm, said in an Oct. 8 interview.
The measure would raise about $665 million annually by requiring part-time New Yorkers to pay a 0.5 percent surcharge on dwellings valued at more than $5 million. The tax would rise incrementally to 4 percent for units valued at more than $25 million.
“It targets very wealthy non-New Yorkers who enjoy our services, don’t pay city income tax and pay very little property tax, particularly in buildings that got subsidies,” Hoylman said.
The city Finance Department reports about 89,000 co-operatives and condominiums owned by persons for whom the unit isn’t their primary residence. Of those, about 1,556, or 1.75 percent, would be affected by the luxury non-resident tax on units valued at more than $5 million, according to the Fiscal Policy Institute, the union-backed research group that developed the proposal.
New York’s real-estate industry accounted for $15.4 billion of the city’s $41 billion in 2012 local revenue, more than enough to pay for its 70,000 teachers, 35,000 police officers, firefighters, sanitation workers, parks and libraries, according to a real estate board report.
The industry’s reaction may be disproportionate to the tax’s chance of passage. For the idea to become city law, a lot of improbable political events would have to happen. The measure would require approval of the state legislature, whose composition will be determined in a Nov. 4 election and where the Senate, now run by a coalition of Republicans and Democrats, has been hostile to new taxes.
It also would need the signature of Governor Andrew Cuomo, a Democrat who built a campaign treasury of more than $30 million by accepting donations from corporate executives and real-estate developers. On his campaign website, he vows to “reverse the mentality of New York as the tax capital of the nation.”
More than 80 percent of the $665 million generated would come from 445 units valued at more than $25 million, whose owners would pay an average $1.2 million a year in taxes, said James Parrott, policy institute’s chief economist.
This tax may not pass this time around, but mark my words, it will pass eventually. When 80% of the tax can be collected from 445 foreign owned, vacant units, these oligarchs ultimately will be milked when the NYC economy turns south again. Whether you agree with it or not is beside the point. These taxes are coming and this is just the start.
The most disingenuous and sickening type of status quo defender is the person who blames the recent expansion in wealth inequality on a “lack of skilled workers.” Such a person is either a liar or an imbecile. There’s not much wiggle room there. Either this person doesn’t know that the Federal Reserve’s quantitative easing (QE) lifts asset prices while doing very little for the economy, or he or she is choosing to ignore it. Either this person doesn’t understand that the poor and lower middle class don’t own much in the way of stocks or bonds, or he or she is choosing to ignore it.
