Deal Takes Shape for ‘Mansion Tax’ to Move Forward

New York City Mayor Bill de Blasio is calling for a new tax on the sale of houses, co-ops and condominiums worth more than $1.75 million, part of a wider political deal that would extend tax breaks for developers and create another revenue source for city housing programs. The proposal was endorsed by the Real Estate Board of New York, an industry group long dominated by large developers. “It is not what we would have recommended but we are supporting the whole plan because it will create more housing,” Steven Spinola, president of the real estate board, said of the new tax. For some rank-and-file real-estate brokers, however, the deal wasn’t necessarily welcome. They said the new “mansion tax” of up to 1.5% on top of existing transfer taxes paid by buyers and sellers could put the brakes on the city’s roaring residential-property market. “I would just love the mayor to help me by taking me by the hand to show me that $1.75 million mansion in Manhattan,” said Leonard Steinberg, president of Compass, a brokerage based in Manhattan. The city estimated the tax would affect 10% of all transactions. But in Manhattan it would affect many more deals. A review of market-rate transactions found that 27.6% of all Manhattan deals would have required the payment of the new tax last year, including 68% of townhouse sales, and 39.4% of condo transactions. Pamela Liebman, president of the Corcoran Group, said she was briefed by the real estate board some time ago and that she opposed the tax. “I think it could really cool the market,” she said. “We are already at a point where prices are high and there is a limited amount people will want to pay.” While the idea of a mansion tax has been discussed for months, with some debate centering on how much money it would generate for the city, Thursday’s proposal had political winds behind it. Support from both real-estate industry leaders and advocates for the poor and affordable housing, makes it more likely that the Democratic-controlled Assembly and Republican-controlled Senate would take up a version of the mayor’s housing plan by the time a number of key city housing provisions sunset on June 15. Those include the so-called 421-a tax abatements on construction of new residential buildings. The measure has been criticized by some as a corporate giveaway and lauded by others as helping to get apartments built in a growing city. Jolie Milstein, president of the New York Association for Affordable Housing, said the mayor’s mansion-tax plan “is a vital step in making the mayor’s affordable-housing policy a reality.” The new city mansion tax was projected to raise up to $200 million a year, to be set aside for affordable-housing programs. Alicia Glen, deputy mayor for housing and economic development, said the mansion tax was a “fair tax that allocates burden appropriately.” “There is a real recognition by everybody that the frothiness and the strength of the condo market is something that New Yorkers should be able to collectively take advantage of.” Manhattan state Assemblyman Keith L.T. Wright, chairman of the housing committee, promised to “lead the fight” for the proposal. In the Senate, the housing chairwoman, Catharine M. Young, who represents an Olean, N.Y., district, said she hadn’t seen specific bill language so “it is too early to comment.” The new tax would be 1% paid by the buyer for properties valued at more than $1.75 million and 1.5% for the portion of properties valued at more than $5 million. Under current law, city and state transfer taxes on properties worth more than $1 million total 2.825%. That includes a 1% state tax on homes worth at least $1 million paid by the buyer, with the balance paid by the seller. But in nearly all new condos, developers require the buyer to pay all the taxes, which would bring the tax to well over 4% for very expensive properties. As part of his discussions with the real-estate industry, Mr. de Blasio agreed he would extend the number of years that many benefits run under the 421-a program and permit some developers with expiring abatements to re-enter the program. But the proposal also set new requirements that support the mayor’s efforts to get more affordable apartments developed in the city. It limits the abatements to rental buildings, rather than condominiums, and requires that developers set aside 25% to 30% all units built as affordable housing at below-market-rate rents, including some for low-income families making at little as $31,080 for a family of three. Under current programs, developers were required to make 20% of units in high-demand neighborhoods affordable to somewhat more affluent moderate-income families. At the same time, in areas where developers were seeing lower returns on their projects, they were able to get the tax break without making any apartments affordable. Now in these weaker markets, developers would be expected to provide 30% of the units for affordable housing, but these would be for the more affluent middle-income residents. Their maximum rents, typically about $2,500 a month, would initially be at or close to market rates to encourage development and not be a burden to developers. As a result, the city now forecasts that the program would create 25,500 new affordable apartments in the next 10 years, more than double the 12,400 called for under the old program.