News of hedge fund tycoon Ken Griffin’s record-breaking purchase last week of a $238 million penthouse prompted what has by now become a routine series of responses to the city's sky-high real estate transactions: sticker shock and bewilderment, followed by "Who is this guy?", followed by "He ain't all that."
But for New Yorkers, an especially sore point of Griffin’s purchase is that, like many of the city’s luxury real estate buys, his ultra-exclusive four-story pad at 220 Central Park South will likely not be a primary residence, meaning that the hedge fund billionaire and serial real estate collector will not be subject to local income tax. In some cases, because of a controversial tax abatement program, some owners of luxury apartments in New York City even manage to pay less in property taxes than their neighbors.
Amid the outrage, at least two members of the City Council, including council speaker and possible mayoral candidate Corey Johnson, have renewed calls for a pied-à-terre tax on luxury homeowners, though they haven't yet provided details.
Councilman Mark Levine, who represents the Upper West Side and Washington Heights, said that while New Yorkers have grown increasingly accustomed to "grotesque" property transactions by the uber-rich, last week's record-setting figure — which made Griffin the owner of the most expensive residential property ever bought in the United States — struck a nerve.
"I think something snapped in a lot of people," he said. "It has changed the debate in a way that has to be addressed. People are simply not comfortable with this kind of extreme wealth moving into our cities without it benefiting the people that live here."
Johnson was not available for comment. But a spokesperson for the speaker said he and the council were “looking at this issue closely.”
It’s time for a pied-a-terre tax. We should tax luxury non-primary residences, like this one likely will be.
Are you with me? https://t.co/fGxG88j6k5
— NYC Council Speaker Corey Johnson (@NYCSpeakerCoJo) January 25, 2019
47 rent-stabilized tenants were evicted to make way for construction of this new tower, where the penthouse just sold for $238M to a billionaire who will pay *zero* local income tax. Exhibit A for why we need a pied-a-terre tax in NY now. https://t.co/AonC70XfMH
— Mark D. Levine (@MarkLevineNYC) January 25, 2019
The pied-à-terre tax is not a new concept. Back in 2014, state Senator Brad Hoylman drafted a bill based on a proposal by the Fiscal Policy Institute that would have imposed a graduated tax starting at 0.5 percent on non-resident owners of properties valued at more than $5 million and rising to as much as 4 percent on those with properties worth more than $25 million.
At the time, the FPI estimated that such a pied-à-terre tax could generate more than $600 million a year in additional city revenue. That number was based on an estimate that the number of pied-à-terres valued in excess of $5 million was 1,556. (However, an analysis of the city's luxury housing market in 2015 by the city's Independent Budget Office disputed that figure as inflated and estimated that the amount would fall well below $380 million.)
Regardless of the exact impact, the bill went nowhere, in large part due to strong pushback from those in the city’s real estate industry who said that such a tax might “start to collapse the residential market.”
Despite such ominous claims, the pied-à-terre tax idea, which has precedents in other cities grappling with housing shortages amid the prevalence of luxury ghost apartments, has never completely died. In 2015, then-City Council Speaker Melissa Mark-Viverito, who’s now running to become the city’s public advocate, backed a pied-à-terre tax as a way of raising money to hire more police.
So with Democrats now in command of a governing majority in the state legislature, could a pied-à-terre tax join the list of the party’s progressive agenda items?
Hoylman, who has re-introduced the bill in this legislative session, said that while it remains an open question whether his pied-à-terre tax proposal can get traction, he believes Griffin's purchase has certainly renewed attention on the issue.
"We are constantly asked how we can build more housing for the homeless and for people being priced out of their neighborhoods," he said. "The pied-à-terre is one possibility that needs to be on the table. Because if we continue to hold budgets flat or raise them minimally, I think it's time to consider new sources of revenue."
Policy experts who have long argued that a pied-à-terre tax would be a "win-win."
James Parrott, the director of economic and fiscal policies at the Center for New York City Affairs, wrote the FPI proposal on which the 2014 legislation was based. He said he sensed interest in the pied-à-terre tax to be "substantially greater now."
(Parrott is currently serving on the city's Advisory Commission on Property Tax Reform and prefaced his remarks by saying they did not reflect those of the commission.)
According to Parrott, the environment in New York City is ripe for reform, citing the heightened public awareness of billionaires snapping up luxury dwellings, growing income inequality, the affordable housing crisis, and a recent national debate, prompted by Rep. Alexandria Ocasio-Cortez, over a more progressive tax system.
"It’s very likely we could see some action this year," he said.
Similarly, Moses Gates, vice president of housing and neighborhood planning for the Regional Plan Association, who has also advocated for a pied-à-terre tax, said, "The more we see the inequities that are happening because of the lack of a pied-à-terre tax, the more we see that there’s public appetite for addressing it."
Both Parrott and Gates rejected the argument that such a tax would result in a residential market slide.
Gates cited the attraction of New York City for wealthy buyers as both a place to visit and a relatively safe investment as reasons why the impact on housing prices would be minimal. "I don't think it will even come close," he said.
Under the proposed bill, Griffin would be asked to cough up $8,890,000 a year to the city for maintaining his part-time residence at 220 Central Park South, according to Parrott's rough calculation.
David Kallick, the deputy director and director of immigration research at FPI, said that between the changed political climate and the recent high-profile sale, "It's definitely woken people up."
Although it might not be clear what percentage of city housing consists of luxury pied-à-terres, the data shows that there is growing trend of unoccupied residential units. According to a 2017 survey by the New York City Department of Housing Preservation and Development, the number of apartment units in the city that were vacant because of "seasonal, recreational, or occasional use" was 74,945. That's 30.5 percent of the total units in the city that were classified as vacant but unavailable for rent or purchase. It's also the highest number since the Regional Plan Association began tracking such vacancies in 1991 — and according to the RPA, more than enough to house all of the city’s homeless.
UPDATE: The original version of this story incorrectly stated the title for Moses Gates. He is the Regional Plan Association's vice president of housing and neighborhood planning.