While New York’s current housing crisis is severe, it is not unique. Major cities around the world are dealing with housing shortages, and some are resorting to a measure aimed at the problem: a tax on vacant homes. Vancouver recently instituted such a tax, Paris raised one, and London’s mayor recently called for the ability to raise such a tax. Even in San Francisco, a Supervisor asked the City Attorney’s Office to look into the legality of a similar idea.
Here in New York, people are willing to entertain extreme solutions, like the land bank proposed in the recent mayoral primary. But any attempt to increase the City’s supply of affordable housing faces significant challenges, whether they be political, legal, or logistical. A vacancy tax would be a heavy lift as well, but even Mayor De Blasio’s own plan, Housing New York, was initially criticized as overambitious.
Could New York City pursue its own version of a vacancy tax as part of its solution?
“When I used to walk down the street, I never really looked at the buildings like that,” says Jermain Abdullah, a Harlem resident and housing advocate with Picture the Homeless. “But one day I was walking down, and I was like, ‘Why are all these buildings vacant?'”
Abdullah’s experience is certainly not unique. Many New Yorkers have noticed empty or unrented apartments in a city where the vacancy rate hovers around 2 percent, giving rise to rumors and concerns about foreign owners and oligarchs buying up the City’s prime real estate. In some of Manhattan’s most expensive buildings, as few as one third of owners claim the tax abatement for full-time residents.
The truth, though, is likely more quotidian, with landlords and building managers holding apartments back during market pauses, waiting for the windfall of coming gentrification. “Right here in Harlem,” says Abdullah, “you have two blocks that’s owned by the same family. The storefronts are active, but the buildings are vacant, like they’re waiting for this rezoning to go through so they can build tall buildings with it and make a killing.”
Concerns like this have spurred PTH’s push for the Housing Not Warehousing Act, which would force the City to make a count of vacant land and buildings, including both City and privately-owned lots, but this would only be a first step. The ultimate goal, according to PTH, is a tax or fine, similar to what cities like Paris, London, and Vancouver have all tried.
Whether or not such a plan could work in New York City is up for debate. Aside from the political challenges, the legal and logistical obstacles are serious. Still, the idea of creating more affordable housing without having to offer concessions to private developers or push through unpopular rezoning plans is obviously attractive.
Political and legal challenges
The most obvious impediments to a vacancy tax in New York City are political. Even the Housing Not Warehousing Act, as ambitious as it is, was scaled back from its initial demands to garner political support, according to Sam Miller, Communications Director for Picture The Homeless. But given the state of the city’s housing crisis, options once considered extreme are becoming politically palatable.
“It’s becoming blatantly more and more obvious every single day in New York that the current models for affordable housing are not working,” says Jabari Brisport, who is running for City Council in District 35, where the issue is particularly salient thanks to a controversial redevelopment proposal for the Bedford Union Armory in Crown Heights.
“That’s why there’s such a fever pitch around the Bedford Union Armory, and also why the Democratic primary in my district was so contentious,” Brisport says, referring to the tough challenge incumbent Laurie Cumbo faced last month. “So there is a populist pressure to do something extremely radical on housing and everyone knows that the status quo is not enough.”
Inspired by the Paris model, Brisport has proposed a vacancy tax as a way to dissuade landlords and developers from catering to the high end of the market while New Yorkers of all income levels struggle to find affordable housing. He points to stories about luxury buildings offering amenities and concessions to prospective tenants, instead of making rents affordable, as evidence of the shortcomings of the current model. The mayor’s Housing New York program uses zoning changes, and occasionally public land, to extract affordable units from private developers, but Bridport points out that those developments are rarely affordable for people in the neighborhood. He suggests that a vacancy tax would encourage landlords to bring rents down to meet the existing market.
But Brisport is an outsider candidate—he is running on the Green Party and Socialist ballot line—and while he sees potential allies in the City Council’s Progressive Caucus, he concedes that it would be an uphill battle to get such a tax passed. Even if the City Council got on board, an even bigger challenge would be getting state approval for such a tax.
Any new tax, which would be the simplest way to implement a vacancy fee, would have to be approved by Albany, which has been known to resist any attempts by the city to control its own housing policy. While the city does have leeway when it comes to its property taxes, it’s not clear that it could enact such a measure that way. For example, Class 2 properties, which include most large residential apartment buildings, are taxed based on their income streams, which are lower when units are kept vacant. But those classes are defined at the state level, so it’s not clear how the city could on its own create a new way to treat vacant parcels. Any attempt to do so would likely be challenged, making the City Council reluctant to pursue the policy without state support.
When the city sought to address inequities in its property tax system in the mid-1990s, it went to the state to get an abatement for owners of condos and coops. But that was meant to be temporary (it has been renewed each time it has come up since it was first passed in 1996), and New York City’s property tax rates remain skewed in similarly arbitrary ways—according the Lincoln Institute of Land Policy, apartment buildings are taxed at a rate five times higher than single-family homes, the largest discrepancy in the country. If there were a concerted effort to reform the tax rates, some form of a vacancy tax could be on the table, but the State seems reluctant to embark on such a complex venture, especially since doing so would likely raise taxes on some New Yorkers.
Complicating all of this is next month’s vote on the state constitutional convention. Many supporters of a convention see it as an opportunity for the city to gain home rule, and no longer be subject to the whims of Albany. For housing advocates, the most obvious prize in such a push is stronger rent regulation, but if the city could control its own tax system, it could conceivably implement a tax on vacancies without state approval.
The Pied-à-Terre precedent
While a vacancy tax would be a new idea in New York City, it bears some similarities to an idea that has been floated throughout the city’s history: a tax on pied-à-terres, or apartments kept as second homes by non-City residents. As opposed to a vacancy tax, which would be broadly aimed at vacant lots and buildings, as well as the unoccupied rental units in the luxury buildings Brisport identified, a pied-à-terre tax would be aimed at a narrow subset of vacant apartments. Often in very wealthy areas, and typically held by the rich, these apartments are often targets for politicians, who often propose pied-à-terre taxes, or taxes on foreign buyers, during election season. Sal Albanese, who lost to the mayor in the Democratic primary and is running on the Reform Party line in the general election, brought it up in this year’s mayoral race.
A pied-à-terre tax would also require state approval, but it already has a degree of political support in Albany. Manhattan State Senator Brad Hoylman introduced the idea when running for reelection in 2014, and Council Speaker Melissa Mark-Viverito endorsed it the following year. It also has the support of groups like the Fiscal Policy Institute and the Regional Plan Association.
The political appeal of such a tax is clear, since it would be primarily aimed at nonresidents and the wealthy, but many see it as sound policy as well. Moses Gates of the RPA says the plan has several unique advantages—the biggest of which is it activates a new supply of housing while earning, rather than costing, the city money. “You don’t have a whole lot of revenue-positive ways of increasing the housing supply in New York,” he says. “You’re generally throwing a lot of taxpayer money into not only low-income housing, but to some extent even market-rate housing.”
In contrast, a pied-à-terre tax would only require the costs of implementation. Depending on how it’s implemented, it could raise money (in Vancouver, the Council has pledged that any money raised beyond what its tax costs to implement will go to additional affordable housing programs), and it could actually bring existing apartments into the rental market. In addition, the pied-à-terre tax does not require the time, land, and labor costs associated with new housing construction.
Nor would it generate the community pushback that has often greeted de Blasio’s proposed rezonings. Residents in neighborhoods like Inwood are understandably concerned that new developments will lead to gentrification and, ultimately, displacement. But a pied-à-terre tax would mostly affect units that are already in wealthy areas.
“They’re not above the existing market,” says Gates. “They’re not contributing to upward pressure on rents, or upward pressure on retail businesses or something like that. You put a bunch of apartments in Manhattan, it’s rich and it stays rich. As opposed to if you do it in a gentrifying area.”
This logic behind the pied-à-terre tax also extends to a broader vacancy tax, as do other ancillary benefits, like capturing the foregone income tax represented by vacant apartments and increasing the vitality of neighborhoods by not keeping units empty.
The most common objections to the pied-à-terre tax are that its impact would be small, and that it would only address the luxury end of the market. But if high-end renters could move into apartments currently used as pied-à-terres, it could ease the pressure on rents throughout the city.
As for the overall impact of such a tax, or a similar tax on vacancies in general, there are as many as 50,000 vacant apartment units in the city, according to the Housing and Vacancy Survey. Certainly not all of those are suitable for renters, and aiming to push the city’s already low vacancy rate down even further reveals the extent of the city’s housing crisis. But even a fraction of the units held vacant would compare favorably to the mayor’s plan to create 80,000 new units over ten years.
Gates is careful to stress that such a tax would have its drawbacks and is by no means a magic bullet. It could, however, be an important piece of a broader solution, especially given the state of the crisis in New York City, where every little bit helps.
“This is a city that gets real excited about a 47-unit apartment building, and the city will have a giant self-congratulatory press release for a deal for 118 units,” Gates says. So a tax that addresses tens of thousands of units is worth exploring.
“And if you can do that in a way which not only doesn’t cost anything, but kind of brings in revenue in lieu of the apartments that would be created as full-time homes, I think it’s a good idea.”
If New York City is going to explore the idea, then one city it could look to is Vancouver, which passed its Empty Homes Tax last year. The British Columbia city has experienced a housing crunch for several years now, going back to at least when it hosted the Winter Olympics in 2010, and its rental vacancy rate currently sits at 0.6 percent.
Vancouver instituted its Empty Homes Tax in a relatively short timeframe. It was only in March 2016 that the Vancouver City Council commissioned a study by the local electrical utilities, which determined that as many as 10,000 units—in a city of 200,000 residential properties—might be underutilized or unoccupied. By the following summer, the Council was dealing with similar issues of legal authority that would face New York.
“We really did not have the legal authority to implement a tax,” says Esther Lee, Vancouver’s Director of Financial Services. “So we worked with the Provincial government and at the end of July 2016, the Provincial government enacted new legislation in our Vancouver charter, as an amendment, to give us the authority to implement an Empty Home Tax.”
The coordination with the Provincial level was aided by the fact that Vancouver’s housing problems extend outside the city proper. The 22 suburban municipalities outside the city were also experiencing increased housing costs, and so at the same time the Province amended Vancouver’s charter, it also instituted a tax on foreign buyers. This shared level of urgency between the city and Province-level is likely not something New York City could count on were it to seek powers from the State.
While Vancouver’s tax on foreign buyers seems targeted at the higher end of the market, mainly single-family homes, the Empty Homes Tax is designed to get use out of condos or apartments. As many as 90 percent of the homes identified in the electrical consumption study were apartment-style units. The tax is 1 percent of the assessed value of the home, which can amount to two or three times the existing property tax bills. Such a high rate was necessary, the Council felt, to encourage owners to change their behavior, either by renting the units, selling them, or using them as their primary residence.
“The major resistance, or concerns were from people who had a principal residence outside the city,” says Lee. “That’s where they retired to, but they kept a condo in Vancouver, come to it occasionally for visiting grandchildren, going to the theater, going to doctor’s appointments, numerous uses. Those were the ones that were very much against this tax. They felt it was putting an undue financial burden.”
But the Council felt that Vancouver’s crisis warranted such a burden. Similar pushback would likely face any effort to pursue a tax on vacancies in New York City, in addition to the anticipated resistance from the real estate lobby and landlords.
But aside from the political decisions and obtaining the legal authority, Vancouver faced a whole host of logistical challenges in implementing the tax. They had to precisely define exceptions for people who, for example, might be in long-term medical care, or might simply be renovating property. They had to take care to insist “tenancy” had to be extended in 30-day increments, so that landlords couldn’t circumvent the tax with AirBnB guests. And they had to staff the thousands of 311 calls received from citizens with questions about the new tax.
Some of these challenges were exacerbated by the quick timeframe in which Vancouver’s Council chose to enact this measure, but many would surely be more difficult in a city like New York, which is ten times the size of Vancouver.
One advantage that Vancouver had was an existing tax concept, known as Principal Residence, that they could piggyback on. Already used to extend school tax credits to homeowners, Vancouver already asked property owners to declare their Principal Residence. This meant that the city could use a system that many citizens were already familiar with, and avoid having to prove length of occupancy, which would have added to the costs of implementing the tax.
“Our planning department looked at a number of international cities,” Lee says of the decision to use Principal Residence. “Most of them have been based on the concept of occupancy, and length of occupancy, and their recommendation was, ‘That’s not working.’ It’s too hard to prove how long you were occupied.”
Instead, properties that are not listed as the owner’s Principal Residence, or rented out as someone else’s Principal Residence, are subject to the tax. New York City does not have a similar system. While residency is used to apply the New York City income tax, and some property owners in the city establish residence to claim the condo and coop tax abatement, the City would likely have to build from scratch some mechanism for linking most residents to their property owners, who would be subject to such a tax.
It’s too early to know if Vancouver’s tax was a success, but the annual survey of rental properties conducted by the Canada Mortgage and Housing Corporation comes out at the end of November, and that will provide a picture of how many condos are added to the rental pool. Housing advocates in New York City, along with many other cities around the will, will likely be paying close attention.
If New York City does elect to pursue such a method of addressing its housing crisis, it faces a host of obstacles. As the Vancouver example indicates, a necessary precondition is likely not just the permission, but the active support of the state government. This may seem unlikely at the moment, but given the international momentum of the idea, as well as the scope of the problem in New York City, where even the mayor concedes there are no easy solutions, it may not be long before a vacancy tax starts to look like a good idea.