NYC could start imposing a tax on second homes valued over $5 million. Luxury real-estate leaders in the city say it would be an 'irrevocably damaging' move.

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The pied-à-terre tax was first introduced by New York State Senator Brad Hoylman in 2014.

• New York State Senator Brad Hoylman is hoping to revive the pied-à-terre tax, which was booted this past spring, The Real Deal reported.
• The pied-à-terre tax was proposed as a mandated annual tax on second homes worth $5 million or more.
• Instead, it was replaced with the progressive mansion tax, a one-time fee that affects home sales of $2 million or more starting at 1%, capping at a 3.9% tax on home sales of $25 million or more.
• Business Insider asked three industry leaders for their reactions to the pied-à-terre tax. They all said the passing of the tax on top of the already-existing mansion tax would be detrimental to the city's luxury real-estate market.
• Visit Business Insider's homepage for more stories.

Owning a home in New York City is expensive. Owning a second home in New York City may soon become even more expensive.

That's because New York State Senator Brad Hoylman is on a mission to bring back the pied-à-terre tax that was, most recently, turned down in March, The Real Deal reported.

The pied-à-terre tax was proposed as a mandated annual tax on second homes worth $5 million or more. However, fueled by the fear that the tax would cripple New York City's already-slow luxury residential market, industry leaders rallied against it, and the proposal was squashed.

Now, less than a year later, Hoylman told The Real Deal that he's working on the "technical aspects" that got the bill booted in the first place and that he's hoping to bring it back to the floor at the start of the Senate's January session.

Here's how the proposed tax would have worked, and why industry leaders are so against it.

Who would the pied-à-terre tax have affected?

If the second-home tax passed in the spring, it would have directly affected ultra-wealthy New York residents. The booted proposal suggested an annual tax on non-primary residences worth $5 million or more.

The bill was backed by Governor Andrew Cuomo, and estimates put the bill's anticipated revenue at around $650 million a year, according to The New York Times. The funds from the tax would have been used to support and improve the city's subway system.

A proposed pied-à-terre tax has been floating around New York City for years

Hoylman first introduced the bill back in 2014. But, according to a report by 6sqft, it was rejected by the Republicans in the Senate.

In January of 2019, billionaire Ken Griffin purchased a $238 million Manhattan apartment- the most expensive home ever sold in the US. The purchase acted as a catalyst for lawmakers aiming to push the second-home tax through.

However, the pied-à-terre tax was booted and instead, the progressive mansion tax was passed. 

What is the progressive mansion tax? 

Three months after Griffin's purchase was made public, lawmakers passed two new sales taxes on multimillion-dollar homes in New York City.

First, the progressive mansion tax - a one-time fee that affects home sales of $2 million or more - was implemented. The fee increases with the price of the home.

Shayanne Gal/Business Insider

Earlier this year, lawmakers passed two new sales taxes on multimillion-dollar homes in New York City.

Second, a .25% transfer tax was put into place on homes that sell for $3 million or more.

The passing of the revised mansion tax instead of the proposed pied-à-terre tax sent waves of relief through New York City's luxury market. 

"We probably dodged a bullet here," Steven James, CEO of Douglas Elliman's New York City division, told Bloomberg in an interview.

How are industry leaders reacting to Hoylman's plan to revive the pied-à-terre tax?

With the revival of the pied-à-terre tax looming over the luxury market, industry leaders are once again fearing its impact.

"If you keep adding taxes to buyers in this segment, it will eventually depress real estate values," Cody Vichinsky, co-owner and founder of the luxury real-estate brokerage Bespoke Realty, told Business Insider in an email.

"This move does not have the potential to drive real estate purchases, especially with the mansion tax already in effect," he continued.

Vichinsky isn't the only industry leader who has expressed concern.

Barbara Fox, founder and president of the real-estate brokerage Fox Residential, told Business Insider that a pied-à-terre tax would be "irrevocably damaging to the Manhattan/NYC real estate market." 

"There are so many new buildings going up currently that will all be dependent on pied-à-terre buyers - who will become non-existent with the institution of this tax," she told Business Insider in an email. "There are so very many aging baby boomers who are pied-à-terre owners in NYC who will definitely sell their current properties and leave NYC for good, or, if they wish to continue spending time in the city, they will most likely rent. We must stop this movement which will destroy the already suffering residential market."

The luxury residential market has been suffering, and some fear an added tax will only make it worse

Business Insider previously reported that, according to recent data from the listing website StreetEasy, one in four luxury apartments in New York City is currently unsold.

"While New York City has gone through an impressive economic expansion in the last five years, demand for high-priced condos seems likely to be an early casualty of a potential future recession," Grant Long, a senior economist at StreetEasy, wrote in a blog post.

There are fears, too, that the added tax would jeopardize what little stability there currently is in the real-estate market.

"The Manhattan residential real-estate market is finally starting to stabilize after three years of steady decline, and this tax will surely reverse that trend and bring in a new period of falling prices," Warburg Realty real-estate broker Rachel Ostow Lustbader told Business Insider in an email. 

Hoylman, however, remains confident.

"I think the overall issue is that a lot of New Yorkers believe a lot of nonresident wealthy owners of condos … aren't paying their fair share," he told The Real Deal. "I and many of my colleagues think there should be a premium on that investment." 

There is no word yet on whether or not elements of the bill will differ from past iterations.

Brad Hoylman's office did not immediately respond to Business Insider's request for comment.