A new law would mean a dramatic increase on the transfer tax of certain properties
The State of New York (on behalf of the City) is trying to pass a law to dramatically increase the transfer tax on 1 to 5 family properties sold within 2 years of original acquisition in New York City. This is a 15-20 point increase in the transfer tax! This means that when you go to sell your property, you will pay the City of New York an extra tax equal to 15-20% of the sale price of the property—15% if the property is re-sold within two years of purchase and 20% if sold within one year.
The City is rightly concerned about an “affordable housing crisis.” The data shows that rents are rising much faster than incomes causing more of the family dollar to be spent on housing. Additionally, there is less total affordable housing available, driving up the demand for what is available which in turn, drives up the rent.
The legislation’s stated purpose is to “deter property speculation and flipping in vulnerable neighborhoods.” According to this statement, the New York legislature believes property flippers are the main culprit. However, the City’s own analysis shows that one of the main reasons rents are rising is due to the current housing stock no longer falling under the requirements of rent stabilization regulations, and the causes behind this trend have almost nothing to do with the flipping of rehabbed properties; rather its mainly due to high-rent vacancy deregulation.
Another substantial cause is the lack of total housing stock, including preserved existing units, in the affordable range for lower income households. There are thousands of additional units of housing that are left vacant due to dilapidated conditions unsuitable for habitation.
What our legislators are currently attacking then, is our industry’s ability to assist in solving the problem. Our industry is uniquely poised to invest, lend, and build our way to increased housing stock by reactivating and re-using existing structures to house those of lower income. Yet the proposed law is aiming to disincentivize the exact action needed to address the problem.
What is needed is not a disincentive, but a properly organized incentive. If the legislators feel that not enough housing is available in an affordable range for lower income individuals, then the answer is to provide incentives to invest in the types of properties and the neighborhoods that need the help the most. Incentives – whatever the form may be – are needed to close the gap in funding or risk that has so far prevented these properties from being re-used or reactivated and populated by those in need of affordable housing at the lower end of the income bracket.
Would you invest in a property to flip in New York City if you had to pay up to 20% of its sale price as a tax? The answer is most often, no. The tax substantially erodes the return on investment, if not outright strips it away completely. Even for those with higher ROIs to begin with, the tax will lower this enough to make most projects not worth the effort.
Remember, this bill does not just affect the direct investors in these properties. If the investor stops investing, then the investor stops borrowing from the lender; the investor stops hiring attorneys; the investor stops hiring contractors; the investor stops hiring agents – jobs will be lost.
We urge you to contact your New York legislators – especially those sponsoring this proposed law – to tell them how you are against this devastating tax.