Mamdani’s New Tax on 2nd Homes Could Backfire on Everyone

Zohran Mamdani is going to learn how capitalism works the hard way. That seems to be what New York City has signed up for, a very private tutoring lesson for one man with the city’s future in the balance.

This started when Mamdani campaigned on a bunch of promises that he absolutely could not deliver on without help from state legislators and the governor. All of his plans required ne taxes to fund them and that’s not something the mayor can accomplish. And it turned out governor Kathy Hochul wasn’t eager to raise taxes on everyone in order to fund the mayor’s want list because she knows raising taxes is not popular.

Once it became clear that money wasn’t going to rain from the skies because he wanted it, Mamdani promoted a new property tax of roughly 10%. But it turned out that raising property tax on every homeowner in the city wasn’t what progressives had voted for. There was an immediate backlash with one of Mamdani’s former colleagues in the legislature telling him that if the tax happened, he would become a one-term mayor. Mamdani dropped it like a hot potato.

And then he came up with his next brainstorm, a pied-à-terre tax on luxury second homes. You’ve probably seen the smug video Mamdani filmed outside Ken Griffin’s home. Beege had an excellent post yesterday about what an own-goal this could turn out to be. First of all, Griffin’s company is just about to start construction on a major new building worth $6 billion. Is Griffin having second thoughts about building in NYC after being targeted by the mayor? He could.

Today, the NY Times (note: not a right-wing news outlet) points out that Mamdani’s new tax, or something very like it, has been tried before in London. The result: One of the hottest real estate markets in the world has cooled off. Some billionaires have decided to go elsewhere with their money.

Katya Nadirova, a New York-based real estate agent with Douglas Elliman, works frequently to help foreign buyers relocating to and from New York.

“There is a big exodus of wealthy individuals from London, they’re trying to sell and they are thinking then maybe I will put this money into the stock market and I will do much better,” she said. “London is no longer a beacon for this kind of buyer. We don’t want this to happen here.”…

British media reports have chronicled the exit of several well-known billionaires. John Fredriksen, the Norwegian-born shipping magnate, told newspapers “Britain has gone to hell” before selling his $338 million mansion and relocating to Dubai. Nassef Sawiris, the owner of the Aston Villa soccer team who is known as the richest man in Egypt, also exited and blamed the government on his way out.

“This was all in the making for 10 years of incompetence by the most left-leaning Conservative Party in history,” Mr. Sawiris told the Financial Times in April of last year…

The flurry of new taxes, said Lucian Cook, a London-based housing economist who leads research for Savills, have created a narrative that London is no longer as friendly to real estate investment. The number of foreign buyers in the Britain registering with a real estate agent — the first step before purchasing property — is now at its lowest level since 2008. At the same time, the real estate markets in cities like Barcelona and Dubai, where tax rules are much friendlier to second-home buyers, are seeing a fresh influx of foreign money.

In short, billionaires have options. If you make it too expensive to buy property in London, they will buy property somewhere else. 

I suspect mayor Mamdani might read all of this in his hometown paper and think to himself: so what? Why should he care if fewer wealthy people want to live in his city and decide to move to Miami instead? Well, it turns out the impact in London hasn’t been limited to billionaires and the people who sell them homes.

The once-sizzling housing market in central London is now chilled. Sales prices of properties in London have dropped more than 20 percent since 2015. As taxes mounted, interest rates increased and prices dipped, smaller landlords threw in the towel, taking tens of thousands of apartments off the market and constricting supply. Average monthly rents, as a result, are now at record highs.

A similar blowback could be the consequence of Ms. Hochul’s proposal that Mr. Mamdani has gleefully promoted, the economists and real estate agents warn.

So London started by taxing the very rich and wound up with average monthly rents at record highs. Gee, I wonder if New Yorkers will like that when it happens? It’s a real mystery.

The lesson here is the same one that Californians are going to learn when they pass the billionaire wealth tax. Billionaires are already paying a lot and supporting the local economy with the jobs their companies create and the taxes they pay on real estate, etc. If you target them, they will leave. It has already happened in California. Only a handful have left so far, but they happen to be 3 of the 5 wealthiest people in the state. Those people and their hundreds of billions of dollars and their companies are leaving now. In the long run, the state is going to be in worse shape than it was to start with.

Anyway, it will take Mamdani a few years to figure all of this out, by which point Ken Griffin, or people like him, will be gone for good. But, hey, at least the mayor got to make that smug video about taxing the rich. I’m sure that will make up for it.