The struggling luxury housing market in London is raising alarms for New York, particularly as Mayor Zoran Mamdani advocates for a pied-à-terre tax. Critics are concerned that this could lead to a similar outflow of affluent homeowners.
In London, a series of tax increases on second homes has cooled a formerly vibrant market, causing property values to drop over 20% since 2015. Wealthy buyers are pulling back, and many landlords are stepping back, which has led to reduced supply and consequently soaring rents.
This trend is particularly pronounced among international buyers, who used to make up almost half of London’s high-end property market. Now, they’re seeking more favorable tax environments in places like Dubai and Barcelona, leaving new buyer registrations at their lowest since 2008.
The impact is palpable. Charlotte Duck, a property journalist based in London, remarked about the tax situation: “Oh my god, yes, 100 percent.” She explained that many buyers who made purchases in, say, 2017 or 2018 are now having to sell their homes at a loss.
Statistics indicate a sharp downturn in the luxury market. In February, sales of properties in London’s prime areas—including upscale neighborhoods like Kensington, Chelsea, and Mayfair—dropped 31.2% year-over-year, with average prices falling 10%, the steepest decline since the last financial crisis.
Even more striking is the situation for homes priced above $6.8 million, where transactions plunged nearly 55% compared to a year earlier. At the same time, the inventory of available properties increased nearly 10%, leading sellers to reduce prices. It’s now common for more than half of these homes to sell only after price cuts, with an average discount exceeding 13%.
Duck pointed out that owners of second homes are facing various taxation pressures, including increased acquisition taxes, doubled council tax, and stricter regulations impacting landlords’ profits.
This is also affecting the rental market. Duck noted that as many homeowners sell their properties, the overall supply decreases.
Rent prices have seen recent increases, yet despite more properties being made available, average rental values have slightly decreased over the past year. Still, they remain over 30% higher than levels before the pandemic.
If New York City goes ahead with the pied-à-terre tax supported by Mamdani and Governor Kathy Hochul, it might meet a similar fate to London.
Critics argue that the proposal is based on uncertain financial assumptions, with wide disparities in revenue predictions. The New York City Independent Budget Office and City Comptroller estimate nearly $200 million to $300 million annually from such a tax, while the governor’s office aims for a much higher $500 million. This gap largely stems from differing views on how wealthy owners would react.
Business groups caution that cities might be overrating the revenue that would remain after these possible impacts. The New York City Partnership expressed that falling valuations and fewer high-value transactions could cancel out anticipated benefits.
They pointed out that the current real estate generated considerable tax revenues, but not all of it is utilized for city services.
Critics of the proposed tax warn that it could deter high-end non-residential buyers or depress bids, ultimately harming property values across the city.
Industry voices, including the New York Real Estate Commission, suggest that the tax may shrink the luxury market, prompting buyers to reconsider their investments or relocate their funds, leading to reduced real estate values and broader economic implications.
“If someone could live anywhere in the world, they might choose a location with favorable tax conditions,” Duck noted.
The newspaper has reached out to Mamdani and Hochul for comment.
