Just a year after budget watchdogs warned of a “budget crisis” that would leave New York $16 billion short this fiscal year, the state finds itself with ample cash, thanks in part to New York City’s red-hot housing market.
New revenue figures, which project to balance the state budget through fiscal year 2025, benefit the industry as well by reducing the likelihood that New York will raise taxes on real estate. Proposed levies on mezzanine lending and pied-à-terre ownership have been on the table for two years.
As of September, tax receipts from the state’s general fund surpassed estimates by $7 billion, pushing revenue $4 billion above expectations for the current fiscal year, according to a report released by Gov. Kathy Hochul and state budget director Robert Mujica. October results show “no signs that the flow is abating.”
The report highlighted the “stronger than expected real estate market, particularly in New York City.” It attributed the increase to real estate transfer taxes —projected to jump by one-third this fiscal year, to $1.2 billion — to more housing starts and rising housing prices.
A cross-section of New York City sales shows the health of the housing market. Condo and co-op sales more than tripled annually to break a record in the third quarter, a Douglas Elliman report revealed. Despite an exodus early in the pandemic, the median sale price in Manhattan, $1.1 million, is 8.8 percent above where it was two years ago.
The surge could mean a get-out-of-tax-hikes-free card when next year’s budget negotiations come around, watchdogs say.
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Moderate Democrats fended off proposed hikes in the first two pandemic budgets, when New York’s finances were in much worse shape. Among them was the pied-à-terre tax targeting second homes (one- to three-family houses with a market value above $5 million and condos and co-ops with assessed values in excess of $300,000). The bill would have drummed up $232 million in annual taxes, the Independent Budget Office estimated — a relatively small number but one that had the industry sounding alarms.
Proposed taxes on mezzanine and preferred equity financing, which would raise about $200 million annually, were likewise scrapped after local and national real estate organizations wrote then-Gov. Andrew Cuomo, arguing that the tax would be passed on to pandemic-hit landlords and their commercial and residential tenants.
Patrick Orecki, director of state studies at the Citizens Budget Commission, said the state’s strong fiscal position, especially after approving “massive new spending and taxes in this year’s budget,” should be a cue to lawmakers that more hikes are unnecessary.
“Not only should the state not be considering additional tax increases — be they personal income tax, real estate, or other — but they should be considering reducing taxes to improve economic competitiveness,” Orecki said. “Many of the previously-proposed tax increases on real estate, such as pied-à-terre, are anti-competitive and can compound fiscal volatility.”
While the budget update revealed real estate transfer taxes likely would not sustain their momentum into fiscal year 2023, it predicted the revenue would continue to increase in outyears, reflecting projected growth in household net worth, housing starts and housing prices.
James Whelan, president of the Real Estate Board of New York, said the report shows that real estate plays a critical role in supporting New York’s economy and its long-term recovery.
“It will be important for state lawmakers to focus on smart policies that continue to grow the economy rather than detracting from recent progress,” he added.