New York joins the push to tax property wealth

New York looks set to become the latest city to introduce a tax on prime property as it seeks to close shortfalls in its municipal budget. The proposal to tax second homes worth more than $5 million is the first of Mayor Zohran Mamdani’s ‘tax the rich’ measures to gain backing from Governor Kathy Hochul. Mamdani does not have the authority to raise taxes unilaterally and therefore requires support from both Hochul and the state legislature.

National and local government balance sheets across Western economies are yet to recover, and in some cases like the UK even attempt to normalise, following massive pandemic-era spending. In a growing number of locations politicians are turning to the wealthy to close the shortfall. NYC comptroller Mark Levine estimates the city’s deficit at about US$12.6bn across 2026 and 2027, in part due to the fact that many pandemic-era aid programmes continue to roll over.

London will have a new High Value Council Tax Surcharge on properties valued at more than £2 million starting in 2028. The French government has debated – though not implemented – a 2% super-wealth tax for French residents on global assets exceeding €100mn and a flat 1% tax on assets spanning homes, yachts, gold and collectibles. The minority Spanish government has struggled to pass a proposal for a 100% tax on property purchases by non-EU residents. Danish prime minister Mette Frederiksen made reinstating a wealth tax a central pillar of her recent election campaign.

Some exodus

Opponents of these levies rightly point to another of the pandemic’s legacy themes; the mobility of the wealthy. The likes of London and Paris face real competition from cities like Milan, which are developing the lifestyle offer to complement their competitive tax policies. Florida and Texas offer comparable appeal to New York and Los Angeles.

I spoke with Nick Segal, Managing Broker at leading Los Angeles brokerage Carolwood, earlier this year about city and state taxes, including what he described as a "punitive" ULA tax. Introduced in 2023, sales above US$5.4m are subject to a 4% levy, rising to 5.5% for those above US$10.6m. While Los Angeles will always attract the wealthy, Segal said the firm has seen "some exodus" to rival states such as Florida and Texas.

If you tax anything you get less of it, so it's unsurprising that property taxes on high-value properties push sales elsewhere, and while that should concern political leaders, there are often all sorts of other distortive effects. State rules in California, for example, mean that property tax increases don't take effect until a property changes hands. A home that sold for US$1 million a decade ago may now be worth $5 million, but it still gets assessed at its previous sale value. This, of course, discourages sales and the city foregoes revenue indefinitely. Researchers at Harvard, UC San Diego, and UC Irvine found that the ULA actually cut eligible property transactions in LA by 38%, and reckon that between 63% and 138% of the revenue raised by the tax was offset by lower future property-tax revenue.

New York governor Kathy Hochul is viewed as a moderating force on Mamdani's tax agenda. She has rejected broad income-tax hikes on high earners and corporations and said at a recent event that the state's tax base had been "eroded" as high-net-worth residents move to Florida and Texas. That is probably why the second home tax is so narrow; it would apply to people who live outside the state, anyone who lives in New York State but has a second home in the city, as well as investors’ properties that are not rented as primary residences. Second homes that are rented full time to tenants would be excluded.

Seeing scarcity

London's residential developers sold 2,850 homes in schemes of 20 units or more during the first quarter, up 30% compared to Q4 and above the 2025 quarterly average of 2,200, according to Molior London figures.

The fact that sales rose is positive, but only to a point. Activity is coming from a very low base and as Molior point out it will take quarterly sales of about 22,000 to meet the 88,000-home annual housing target. Of the Q1 sales, 1,931 were either bulk deals to BTR operators, other bulk deals or were switched to Affordable Housing. That means UK individuals purchased just 600 new homes in the first three months of the year.

Project starts also climbed to 2,103 – again from an extremely low base – yet both sales and starts data won't take into account the spike in mortgage rates and developers' cost of funding as a result of the conflict in the Middle East. About 16,250 homes will complete this year, at which point scarcity will begin to kick in. Molior expects 10,000 completions in 2027, leaving just 5,900 homes on site by January 2028.

Land buying

While the government and City Hall recently implemented a sensible set of emergency supply-side measures to kick-start housebuilding, quarterly sales of 600 homes aren’t going to spark a building boom. At this point it’s hard to see conditions turning without a substantial fall in borrowing costs, or some incentives for investors or first-time buyers. More on that in Wednesday's note.

It's reporting season for the housebuilders and they've been pretty clear when it comes to their appetite for land. Barratt Redrow will spend up to £200 million less buying land, given the “less certain backdrop” caused by the war in Iran, reports the Times. You can read the trading update here.

In a trading update earlier this month, Berkeley said it couldn't make its required rate of return on buying land, adding that it would pause acquisitions "while these conditions prevail." It will instead focus on its existing holdings, which comprise more than 50,000 homes, with a further pipeline of more than 10,000 homes.

In other news

UK lenders begin cutting mortgage rates after month of turmoil (FT).