New York City Mayor Bill de Blasio proposed what he called a “mansion tax” that would apply to homes worth $2 million or more in late January. This mansion tax, equal to 2.5% of the purchase value of the home, would be used to fund affordable housing throughout the city.
Only in NYC – For Now
Right now, only people buying homes or condos in New York City will be subject to the localized mansion tax. Mayor Bill de Blasio has proposed this tax before to help reform NYC’s real estate development tax abatement, and while the state’s real estate board wasn’t necessarily opposed to the tax, it simply failed to gain momentum, so it was shifted to the back burner. Now, per Alicia Glen, who is the city’s mayor for housing and economic development, says the administration hopes to reach out to a variety of interest groups that may put the mansion tax on the fast track.
A Response to the Changing Political Climate
Per Alicia Glen, the mansion tax will benefit New York City even as the federal government makes changes to the affordable and public housing climate. Recently, the Trump administration reversed Obama’s decision to substantially reduce the FHA annual mortgage insurance premium. This means that new, lower-income borrowers will have significantly higher monthly mortgage payments, which puts a damper on that market. Across the country, FHA refinance applications dropped by 25%, and new FHA applications dropped by 6%. Mayor de Blasio hopes that the mansion tax will help the city provide more affordable housing options.
What about the Downside of the Mansion Tax?
John H. Banks III, President of the Board in New York City, says that the city has one of the highest transaction taxes in the country as it stands. The addition of the mansion tax would add another 2.5% to those costs, and Banks feels that this will suppress sales throughout the city, ultimately causing a significant drop in the city’s tax revenue. In fact, some brokers, including Leonard Steinberg from Compass, have described the enactment of such a tax as “reckless”. In response, Glen noted that only 8.5% of all residential transactions in all five of NYC’s boroughs exceeded the proposed $2 million threshold.
What Does This Mean for the Rest of the Country?
Right now, the mansion tax will only apply to those buying homes inside NYC, and all eyes are on Mayor de Blasio and how the proposal will play out in that city. Whether the proposal becomes reality remains to be seen, but if it does, there’s a good chance that city officials across the country – including those in Denver – may start considering proposals of their own to help increase the sales of non-luxury properties, which could ultimately benefit these cities’ housing markets.
The mansion tax isn’t a law just yet, but it certainly has a strong backing, and there’s a good chance that people buying luxury homes in NYC might be paying an additional 2.5% tax very soon. Whether it’ll help improve the housing situation in NYC or essentially tank the city’s overall tax revenue remains to be seen.