New York City is floating a $500 million second-home tax - and it would hurt industries that support thousands of jobs

By Abir Mandal

Surcharge on luxury units is a gamble that the ultrawealthy won't leave for low-tax states

The "pied-à-terre" tax would apply to an estimated 13,000 nonprimary residences - condos, co-ops and townhouses - in New York City.

Framed as a fair contribution from ultrawealthy nonresidents whose luxury properties often sit vacant, the plan aims to generate roughly $500 million per year for New York City.

There seem to be no good weapons left in New York's arsenal for bridging the significant budget gap facing New York City. Gov. Kathy Hochul's latest push - a new annual "pied-à-terre" tax surcharge on second homes in New York City valued at over $5 million - again misses the mark.

Already saddled with some of the nation's highest combined tax burdens, New York City cannot afford policies that accelerate outmigration, deter investment and stifle growth.

This proposal comes after New York Mayor Zohran Mamdani identified a $12 billion, two-year deficit facing the city. Mamdani initially proposed steep income-tax hikes on the wealthy and corporations to bridge this gap.

Hochul, who had promised no tax increases, balked at the idea. The mayor's alternative - a 9.5% across-the-board property-tax hike - faced fierce pushback. Property taxes in New York City are already sky-high, with co-op owners paying nearly $10,000 annually on average and condo owners paying around $15,000. A 9.5% increase would pass costs to renters, who make up two-thirds of residents, further worsening the housing crisis in a city where the median one-bedroom monthly rent exceeds $3,700.

With those options off the table, Hochul gave new life to the "pied-à-terre" tax. Framed as a fair contribution from ultrawealthy nonresidents whose luxury properties often sit vacant, the plan aims to generate roughly $500 million per year for the city. It would apply to an estimated 13,000 nonprimary residences - condos, co-ops and townhouses - while exempting primary homes, full-time rentals and properties outside the city. The surcharge, still under negotiation, would use a sliding scale based on full market value above the $5 million threshold, layered atop existing property taxes.

A targeted surcharge is often economically damaging. It distorts incentives, erodes competitiveness and fails to address structural deficits.

Hochul presents this as a "common sense" measure. Yet it is no favor to the city's economy or its long-term fiscal health. A targeted surcharge is often more economically damaging than a broad-based increase, no matter how politically appealing it appears. It distorts incentives, erodes competitiveness and fails to address structural deficits.

Hochul's plan rests on the fallacy that owners of $5 million-plus second homes are immobile cash cows. These ultrawealthy individuals - executives, investors and entrepreneurs - are highly responsive to tax changes. Tax Foundation analyses of prior pied-à-terre proposals show strong behavioral responses: Even modest increases in effective tax burdens can prompt owners to sell, reduce time spent in the city or redirect purchases to low-tax states like Florida and Texas.

New York City's property taxes are already among the highest in the country. The proposed surcharge would raise ongoing ownership costs. A hypothetical $8 million luxury condo could face an additional annual bill of tens of thousands of dollars on top of existing taxes averaging $10,000 to $15,000.

The tax would harm construction, brokerage, interior design, maintenance and high-end retail - real-estate related industries that support thousands of jobs.

Increasing taxes on second homes would reduce demand in the luxury segment, exert downward pressure on prices, lower transaction volumes and slow new development. This would harm construction, brokerage, interior design, maintenance and high-end retail - real-estate-related industries that support thousands of jobs - undermining NYC's status as a global wealth hub. Because these owners are often net fiscal contributors, any city revenue gain could be offset by broader state tax losses if high-net-worth individuals shrink their footprint in New York.

Administrative challenges also make matters worse. Verifying primary versus secondary residence status demands ongoing documentation (e.g., days occupied, voter registration, tax filings), creating enforcement costs and avoidance opportunities. Unlike standard property taxes that attach as a lien, this personal surcharge invites disputes and loopholes, including the use of trusts.

Like Mamdani's earlier options, this proposal treats symptoms rather than the disease. New York City's budget has exploded to $127 billion from around $70 billion in 2013 -an 81% nominal increase that far outpaces inflation and population growth. Expansions in social services and other spending priorities have driven this surge. High-tax jurisdictions like New York consistently lag low-tax peers such as Florida in GDP growth and net domestic migration. Florida's entire state budget, serving a population more than three times New York City's, stands at roughly $117 billion - underscoring that the issue is not insufficient revenue but unchecked spending.

This gimmicky pied-à-terre tax does not come close to covering the anticipated deficit.

New York City's revenue has grown substantially year after year despite high taxes, yet it remains volatile. Rather than layering targeted surcharges atop a punitive system, city and state leaders should pursue spending restraint. This gimmicky pied-à-terre tax does not come close to covering the anticipated deficit, and it will not be the last bad tax policy unless the city's spending trajectory is corrected.

Mayor Mamdani, on April 15 - Tax Day - posted a video highlighting how the city plans to tax its rich, ignoring how they already pay some of the highest taxes in the nation. This tax hike risks deepening the Empire State's competitive decline, reducing investment and dimming economic prospects. The Empire City's future should be dictated by sound economics, not ideology.

Abir Mandal is a senior policy analyst at the Tax Foundation.

More: Mamdani wants to tax your second home. Here's a better idea.

Also read: Corporate tax cuts from the 'Big Beautiful Bill' aren't giveaways - the new law actually fuels investment

-Abir Mandal

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04-18-26 1842ET