New York’s Second-Home Tax: What the Research Suggests It Could Do

Key Takeaways

• A small slice of the market. Fewer than 9,000 homeowners are expected to owe the surcharge, equivalent to less than a quarter of 1% of the city’s housing units, so citywide rents and typical home prices are likely to change little.
• Effects show up at the edges. Prices could dip slightly in the affected segments, some owners may sell or rent out their homes, and owners valued near the cutoffs have a strong reason to appeal.
• The $500 million is not locked in. What the city collects depends on exemptions, appeals and the July 2028 switch to new valuations, a higher threshold and lower rates.

New York City expects to collect $500 million a year from its tax on high-value second homes. In October, the city expected fewer than 9,000 homeowners to owe the surcharge, equivalent in scale to less than a quarter of 1% of the city’s 3.7 million housing units. Citywide rents and typical home prices are likely to change little. Prices could dip slightly in the affected segments to offset the increase in ownership cost. Some owners may also put existing homes up for sale or rent.

How the tax works

The surcharge is an annual property tax on certain homes that do not serve as a qualifying primary residence. A home generally qualifies for an exemption if it is the primary residence of the owner, an eligible family member or a qualifying long-term tenant. A U.S. citizen with a second home in New York can owe the surcharge just as a foreign owner can.

For the first two tax years, the rate on condos and co-ops is 4% from $1 million through $3 million, 5.25% above $3 million through $5 million and 6.5% above $5 million. For one- to three-family houses, the rate is 0.8% from $5 million through $15 million, 1.05% above $15 million through $25 million and 1.3% above $25 million. The bands follow the statute, and the Department of Finance’s adopted rules apply the rate to the full value. In the first phase, the cutoffs use the Department of Finance’s estimates for tax purposes. Those estimates often run well below sale prices for condos and co-ops, so a co-op the city values at $1 million may sell for considerably more.

Starting July 1, 2028, the $5 million threshold and the lower house rates apply to all covered properties. For condos and co-ops, the city also changes how it estimates taxable market value, using comparable sales. An apartment below $5 million on the current roll could therefore still qualify under the new rules. The surcharge expires June 30, 2031, under current law.

On November 4, a state appeals court reversed a September ruling that had ordered the city to redo the rollout. The court found that the homeowners who brought the case lacked standing because they had not shown a concrete injury. Separate constitutional challenges remained pending.

1. What outside buyers do to prices

Jack Favilukis and Stijn Van Nieuwerburgh’s 2017 working paper estimated that the rise in outside purchases was associated with home prices about 1.1% higher in the New York metro area and 5% higher in Vancouver. Those are model estimates of what extra demand did in the two markets. They give a sense of scale, but they do not tell us how far prices would fall under New York’s surcharge.

Caitlin Gorback and Benjamin Keys also found that when foreign capital shifted toward some U.S. neighborhoods, local home prices responded much more than the number of homes. Their NBER working paper estimated that a 1% increase in foreign capital raised ZIP-code home prices by 0.27% and housing supply by 0.004%.

2. Where prices might respond

British Columbia’s 2016 tax was a one-time charge on foreign buyers. Andrey Pavlov, Tsur Somerville and Jake Wetzel found that single-family prices in Vancouver-area neighborhoods with more foreign buying fell 6% relative to prices in neighborhoods with less. Table 5 reports estimates from three-, six- and twelve-month windows on either side of the tax. Multifamily prices did not show the same pattern. That makes the Vancouver result a weak basis for predicting a price drop in New York condo towers.

A buyer who expects to owe the surcharge may offer less to cover future ownership costs. The size of that discount depends on who is bidding, how many years they expect to pay and what they think the city will do after 2031. If buyers take the sunset at face value, a limited run of bills is worth less today than the same charge imposed indefinitely. That still leaves room for a meaningful effect on an individual property.

3. How many homes might come back into use

Mariona Segú found that France’s 1999 vacancy tax reduced vacancy by about 13% relative to its starting level, or roughly 0.8 percentage points. Many of the homes brought back into use became primary residences. A Vancouver study by Gherardo Gennaro Caracciolo and Enrico Miglino estimated a 1.5-percentage-point drop in vacancy after that city’s empty-homes tax. Both policies targeted vacant homes. New York can also tax a furnished second home that its owner uses regularly.

A closer comparison is the French municipal surcharge on second homes. Antoine Belgodere and Georges Casamatta found that it raised housing-tax revenue and reduced the number of declared second homes, with no detectable decline in house prices. Dwelling records showed that most of the reported reduction reflected changes in tax classification rather than actual changes in occupancy. New York could see some apartments put back into use, but an exemption count alone cannot tell us how many.

4. What renters and builders might see

Vancouver’s empty-homes studies give different answers on rents. Caracciolo and Miglino found no statistically detectable change in average rents or new construction. A working paper by Lu Han, Derek Stacey, Hong Chen and Giselle Labrador-Badia, which studies Vancouver’s empty-homes tax, found sharp short-run declines in rents and prices, with more listings and sales and longer time on the market. Over the longer run, most of those effects reversed, except for the drop in rents. Their model explains why. The tax pushes investors to rent out homes they had held empty, which helps renters. But it also taxes homes that sit empty while waiting for a buyer, so builders and sellers have less reason to offer homes for sale. Fewer homes for sale mean higher purchase prices and lower homeownership over time.

A different mechanism can put upward pressure on rents. Matthew Botsch and Isaiah West found that rental vacancy fell by more than half after British Columbia’s foreign-buyer tax, consistent with some would-be buyers switching to renting. They also found less new owner-occupied construction in areas popular with foreign buyers. In New York, lower expected selling prices could make some luxury projects harder to finance, while more second homes offered for rent would push in the other direction for renters.

The expected number of taxpayers is equivalent to less than a quarter of 1% of New York’s housing stock. That comparison gives a sense of scale because the city’s estimate counts homeowners and the housing survey counts units. Only some affected homes are likely to come onto the rental market. That limits the likely effect on rents citywide, though the balance of rental supply and demand could shift in buildings or neighborhoods with many second homes.

5. Why owners will contest valuations near the cutoffs

Wojciech Kopczuk and David Munroe studied the older New York mansion tax, which imposed a one-time charge of 1% on the entire sale price once it reached $1 million. Sales clustered below that line. Sellers often absorbed much of the cost through discounts, and the authors estimated about 2,800 missing transactions in New York between 2003 and 2011. New York added higher tiers in 2019.

Under the current second-home surcharge, a nonexempt condo the city values at $999,999 owes nothing in the first phase. At $1 million it owes $40,000 for the year, or $80,000 over the two-year first phase if the value and eligibility stay the same. That is eight times the older mansion tax’s one-time $10,000 charge at its threshold. Because the surcharge uses the city’s value, the response to watch is whether more owners appeal valuations around the cutoffs. Owners can challenge valuations and decisions about whether a home qualifies for a primary-residence exemption at the NYC Tax Commission, with separate filing rules and deadlines. The mansion-tax evidence supports the incentive to appeal, while the size of the response remains an open question.

6. What the city might collect

Governor Kathy Hochul originally estimated $500 million from a proposal covering 13,000 second homes worth at least $5 million. The city’s May financial plan assumed $500 million a year beginning in FY 2027. The adopted budget kept the $500 million projection for FY 2027. The Comptroller estimated $340 million to $380 million for the earlier proposal and calculated roughly $1 billion under the enacted design before the full extent of first-phase exemptions and appeals was known.

The city initially sent about 17,000 notices to property owners who might owe the surcharge. In mid-October, City Hall figures showed about 11,000 applications and about 6,800 exemptions granted so far, with fewer than 9,000 homeowners expected to owe the surcharge. City officials said they still expected to meet the $500 million target. Collections depend on which properties remain taxable and what rates they face. Starting in July 2028, the city will value apartments using comparable sales, which could bring some into scope. The higher threshold and lower rates will also change who pays and how much, adding uncertainty to the $500 million annual projection.

The city has used state income-tax records to help verify residency. If an owner actually becomes a city tax resident, some forgone surcharge revenue could be offset by city income tax. An exemption based on an existing resident, a qualifying relative or a tenant need not generate any new income-tax revenue. Spain offers a reminder that the response can reach other taxes. David Agrawal, Dirk Foremny and Clara Martínez-Toledano estimated that moves in response to regional wealth-tax differences cost six times as much in forgone personal income tax as in direct wealth-tax losses. New York’s response could be larger, smaller, or run the other way.

What to watch in New York

The first test is how much the city collects after exemptions and appeals. The housing test is whether more affected homes are sold or leased to full-time residents, and whether prices move relative to comparable homes outside the surcharge. After July 2028, those comparisons need to account for a different valuation method and rate schedule. The broader benefit to New Yorkers depends in part on how the city uses what it collects.

Sources

1. New York Tax Law § 1353, statutory rates
2. NYC Department of Finance, surcharge eligibility and administration
3. NYC Comptroller, FY 2027 executive budget analysis and Phase One estimates
4. Gothamist, November 4 ruling on the rollout
5. Favilukis and Van Nieuwerburgh (2017), Out-of-Town Home Buyers and City Welfare, CEPR DP 12283
6. Gorback and Keys, Global Capital and Local Assets, NBER working paper 27370
7. Gorback and Keys (2026), Global Capital and Local Assets, Review of Financial Studies 39(8), 2476–2516
8. Pavlov, Somerville and Wetzel (2024), Foreign Buyer Taxes and Housing Affordability, Real Estate Economics 52(3), 928–950
9. Botsch and West (2020), Are Foreign Buyers Making Housing Unaffordable?, working paper
10. Segú (2020), The Impact of Taxing Vacancy on Housing Markets, Journal of Public Economics
11. Caracciolo and Miglino (2024), Ripple Effects, C.D. Howe Institute
12. Belgodere and Casamatta (2026), Quantity, Price, and Compliance Effects of a Second-Home Taxation Reform in France, Journal of Urban Economics
13. Han, Stacey, Chen and Labrador-Badia, Frictional and Speculative Vacancies, working paper
14. NYC Housing Preservation and Development, 2023 Housing and Vacancy Survey
15. Kopczuk and Munroe (2015), Mansion Tax, American Economic Journal: Economic Policy
16. NYC Tax Commission, surcharge appeals
17. Agrawal, Foremny and Martínez-Toledano (2025), Wealth Tax Mobility and Tax Coordination, American Economic Journal: Applied Economics
18. Habitat, August 25 reporting on exemption checks
19. NYC Comptroller, April 2026 fiscal note on the proposed surcharge
20. NYC Comptroller, FY 2027 adopted budget analysis
21. New York Daily News reporting on October exemption figures, via CPA Practice Advisor
22. Han, Stacey and Chen (2023), earlier working paper with the model
23. New York State Department of Taxation and Finance, 2019 transfer-tax changes
24. UBC Sauder, summary of the Vancouver findings by property type
25. NYC Mayor’s Office, FY 2027 executive budget announcement
26. NYC Department of Finance, adopted rules for the non-primary residence surcharge