A new analysis is casting doubt on a proposed tax targeting luxury second homes in New York City, suggesting it could bring in far less revenue than expected while also driving some wealthy residents out of the city.

The report, released Thursday by City Comptroller Mark Levine’s office, estimates the plan backed by Mayor Zohran Mamdani and Gov. Kathy Hochul could fall short of its projected $500 million in revenue by nearly $200 million. It also warns the city could lose about $40 million annually as high-income residents relocate or adjust their living arrangements.

Levine’s findings were influenced in part by the experience of Vancouver, Canada, where a similar policy led some property owners to rent out, sell, or move into their secondary residences.

According to the study, the tax would likely generate between $340 million and $380 million, significantly below initial projections. Levine cautioned that the financial impact could decline further over time.

“Behavioral responses to the tax — conversions to rental, primary-residence claims by relatives, sales, and possible legal challenges — introduce further variability that will only become observable after implementation,” Levine’s study states.

The report adds fresh uncertainty to the proposal, which has been promoted by Hochul and Mamdani as part of a broader push to increase taxes on high earners to address what the mayor has described as “a budget crisis of historic magnitude.”

Supporters of the measure argue that imposing a levy on second homes valued at $5 million or more—estimated at roughly 13,000 properties across the city—could help reduce a reported $5.4 billion budget gap.

However, the comptroller’s review found that these projections rely heavily on assumptions that remain unclear. Many of these properties are already rented out, potentially excluding them from the tax, and questions remain about how the policy would apply to homes owned through trusts, LLCs, or family arrangements.

The study also highlighted uncertainty around how affluent homeowners might react to the new tax, a factor that could significantly affect overall revenue.

Levine pointed to Vancouver’s experience as a possible indicator. The city introduced its “Empty Homes Tax” in 2017 to encourage property owners to rent out vacant units.

At the time, Vancouver had approximately 2,500 vacant homes. That number has since dropped to fewer than 1,000, representing a roughly 60% decline, according to the report.

While Canadian officials have credited the policy with reducing speculation, expanding rental availability, and generating revenue, Levine’s analysis suggests that similar measures in Vancouver and England indicate New York could see a comparable rush to sell properties, potentially reducing expected revenue by about 10%.

“The revenue loss from behavioral changes could compound over time,” he added.

The report estimates that residents leaving the city in response to the tax could reduce revenue by between $38 million and $42 million. Additionally, converting second homes into rental units could cut expected income by another $88 million to $133 million.

Concerns about wealthy residents leaving New York over additional taxes have been raised for years, and the latest proposal has intensified those worries.

Mamdani fueled the debate further with a social media video filmed outside billionaire Ken Griffin’s $238 million penthouse on Central Park South, in which he declared “Today we’re taxing the rich.”

The video angered executives at Griffin’s Citadel hedge fund, who responded by threatening to withdraw a planned $6 billion development project from Park Avenue.

In response, business leaders have urged Hochul and Mamdani to consider exemptions for luxury property owners who generate significant employment, such as those creating 100 or more jobs.

Opponents of the tax quickly pointed to the comptroller’s report as evidence that the policy may not achieve its intended goals.

“Comptroller Levine’s analysis is yet another confirmation that a tax on second homes would not deliver the tax revenue expected,” said James Whelan, president of the powerful Real Estate Board of New York, in a statement.

“This proposed tax also presents significant logistical issues as to how you identify second homes, value co-ops and condos, and account for changes in taxpayer behavior. If implemented haphazardly, this tax would result in less investment, less housing and less revenue for the City, State and MTA.”

Despite the findings, representatives for Hochul and Mamdani signaled that they remain confident in the proposal.

“While details of the policy are still being negotiated, the governor’s proposal will generate at least $500 million for New York City,” insisted Jen Goodman, a spokeswoman for Hochul, in a statement.

Mamdani’s senior spokeswoman Dora Pekec echoed that stance, maintaining the original revenue expectations.

“The comptroller’s report makes one thing very clear: thoughtfully crafting and implementing this legislation will do exactly that,” she said.

{Matzav.com}