A version of Vancouver’s empty homes tax for one of the world’s biggest and most expensive cities just suffered a major legislative defeat.
New York’s state legislature just passed a budget that effectively killed a tax on expensive secondary homes that largely drew inspiration from Vancouver’s own policy, which applies a one per cent levy on vacant homes.
The original iteration of the tax, which was referred to as the “pied-à-terre” tax and was meant to mostly target real estate in New York City, would put an additional annual tax on secondary homes worth $5 million or more, with the tax rate varying between 0.5 and four per cent and affecting mostly out-of-town owners.
State lawmakers and city staff estimated the tax could add at least $650 million to the city’s coffers each year — bringing in some much-needed revenue that could go towards projects like revamping New York’s aging subway system, which could cost an estimated $40 billion over the next decade.
By Monday, when the budget narrowly passed despite outcry from progressive Democrats, local media were reporting the deal was essentially dead after the real estate industry intervened, and the proposal had been whittled down to a “mansion tax” coupled with a one-time transfer tax on all real estate transactions over $3 million.
The replacement, which would still have to be approved by the Big Apple’s city council, is estimated to bring in between $300 million to $400 million — far less than the original proposal.
In the lead-up to the budget negotiations, the New York Times and other media outlets have looked at Vancouver as an example of how a tax on empty homes could be successful.
Reporters and columnists are pointing to city staff’s report in February that the empty homes tax brought in $38 million last year, all of which has been earmarked for affordable housing projects.
“The best level to do this at is the city level, because the taxes can go right back into fixing the problem,” Vancouver mayor Kennedy Stewart was quoted as saying to the Times in February, when the pied-à-terre tax was a brief possibility.
Stewart, who is now pushing to increase Vancouver’s empty homes tax from one to three per cent, said this week no one from New York City or the state has spoken to him directly about the empty homes tax, but added that knowing Vancouver is being looked at as a model is welcome news.
“One of my objectives when trying to innovative policy has been to help others with the same issues,” Stewart said in a statement. “So it’s nice to be able to have others learn from us, just like we learn from other cities.
“I’m proud that Vancouver is taking the lead on this issue, and if it helps others do the same then all the better.”
The original version of the New York tax — just like Vancouver’s — saw immediate pushback from the real estate industry, which argued it could lead to a collapse in the city’s luxury home market.
A Wall Street Journal analysis suggested the pied-à-terre tax would see the highest tax rate of four per cent applied to properties assessed at more than $25 million, which could mean a 46 per cent drop in value on average and homeowners paying an additional $1 million per year in taxes.
But lawmakers argue that putting measures on wealthy buyers who use second homes as investments is long overdue, and have pointed to January’s record-breaking purchase of a luxury Manhattan apartment for $238 million as a tipping point.
The New York Times editorial board agreed, and again pointed to Vancouver’s relative success despite acknowledging in a piece published late last month that home sales declined by more than 30 per cent in 2018.
“Yet that decline could also have been caused, or exacerbated, by rising interest rates,” the board wrote, arguing the raised tax revenue outshone the policy’s apparent effect on the market.
The approved version of the tax rate now tops out at 4.15 per cent on the sale of properties worth $25 million or more.
In 2017, it was estimated New York City had about 75,000 secondary homes, 5,400 of which were sold for at least $5 million.
Stewart’s motion to raise Vancouver’s empty homes tax, meanwhile, has gone back to city staff for a review, which is now expected to be delivered to council in the fall.
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