Will new tax on ultra-luxury NYC homes derail red-hot demand?

New York Governor Kathy Hochul is reversing course and throwing support behind a proposed annual tax on high-end second homes in New York City.

Hochul, who had previously resisted the measure, now says affluent property owners — particularly those with multimillion-dollar second homes — should help shoulder the burden of growing revenue gaps.

The proposed “pied-à-terre” tax would apply to second homes valued above $5 million, with higher rates for properties exceeding $15 million and $25 million.

Lawmakers estimate it could generate roughly $500 million annually and affect around 13,000 properties.

Urgency for new revenue streams has been heightened by New York City’s looming multi-billion dollar budget shortfall — which was left by Eric Adams’ administration.

Real estate industry groups have pushed back hard on the tax proposal, warning it could weaken the broader economy, reduce construction jobs and depress property values.

Bill Kowalczuk, a real estate broker at Manhattan-based Coldwell Banker Warburg, said the policy would likely cool — but not derail — the top tier of the market.

“It would slightly reduce demand,” he told HousingWire. “The ultra-luxury market is strong due to limited inventory, but a new annual cost will give buyers a reason to pause or negotiate. It doesn’t break the market, but it takes some urgency out, especially for second-home buyers at this price point.”

Kowalczuk noted that second-home buyers make up a significant share of the luxury segment — and their motivations matter when assessing the policy’s impact.

“About 30% to 40% of ultra-luxury buyers are getting second homes and many come from other countries or live in New York part-time,” he said. “While they aren’t all ‘refugees,’ many seek something stable, want to spread out their money and have a place in the city.”

Is pushback overblown?

Rather than abandoning New York upon the new tax being implemented, Kowalczuk expects most wealthy buyers to adjust financially.

“Most will negotiate harder on the price,” he said. “At this level, buyers won’t walk away from New York that easily, but they will absolutely adjust pricing to offset the new costs of ownership. A smaller group may look more seriously at places like Florida, but New York will always hold a unique position domestically and globally.”

Kowalczuk also pushed back on industry warnings of severe economic fallout.

“It’s a fair point, but I believe it is overstated,” he said. “There could be some pressure on values at the very top end and potentially slower new development activity, but the ultra-luxury market is resilient; the numbers seem really large to the average person. But, someone who has a $10M second home won’t see it the same way. It [the market] won’t stop. It may just not move as aggressively as it has lately.”

On why the proposal may gain traction now despite failing in the past, Kowalczuk pointed to shifting political and fiscal realities.

“You now have support at both the state and city levels, and the need for revenue is more immediate,” he said. “The proposal feels more real this time, but it still comes down to the final details and what everyone agrees to.”

Surging demand at the very top — despite uncertainty

Debate comes as the ultra-luxury market shows surprising strength — even amid economic uncertainty and geopolitical instability.

HousingWire Data indicates pending sales in the ultra-luxury single-family segment — defined by a $4.3 million median price — jumped 200% in the most recent weekly period.

At the same time, price cuts dropped to 11.8%, well below the city’s long-term average of 17.9%.

That momentum suggests deep-pocketed buyers are still actively competing for scarce inventory.

Outside the ultra-luxury segment, however, conditions are more mixed.

New listings in the broader luxury market — including condos and townhomes with a $2 million median price — fell 17% to 179 properties. The co-op sector saw an even steeper 26% decline in new listings, pointing to persistent supply constraints.

As New York’s market dynamics and state lawmaker negotiations play out, the proposed tax could provide a revenue solution while also testing one of the world’s most exclusive housing markets.