Hochul declares ‘not going to back down’ as $500M pied-a-terre tax targets NYC's ultra-wealthy luxury real estate. What investors need to know now

On May 7, Hochul unveiled an agreement on the state's FY2027 budget, a sweeping $268 billion package that touches everything from housing construction to child care to utility affordability.

One of the most talked about parts of the budget is a new pied-à-terre tax, championed by NYC mayor and democratic socialist Zohran Mamdani. This "foot on the ground" levy targets high-value second homes and investor-owned apartments worth $5 million or more, a surgical strike on luxury real estate expected to generate at least $500 million annually. Mamdami has pushed for a broader wealth tax on the wealthiest New Yorkers as well.

The pied-à-terre tax is designed to target luxury residential properties that are not used as a primary residence — effectively turning high-end second homes and investor apartments into a larger source of revenue.

While both Hochul and Mamdani have been on board with this kind of tax since April, the battle to get to here has been a long one (2). It also remains to be seen how much this will actually alleviate New York's $5.4 billion deficit.

The Hochul-Mamdani tax feud

Hochul has been staunchly against a "tax the rich" approach, claiming that taxes like PTET (pass-through entity) taxes are "not happening (3)."

At POLITICO's New York Agenda: Albany Summit in March, Hochul doubled down, stating that, "I need people who are high net worth to support the generous social programs that we have in our state (4)."

While she alludes to some of these generous folks cutting her checks, this alone is unlikely to be enough to solve New York City's $5.4 billion budget crisis.

In April, Hochul publicly pushed back against several affordability and housing proposals championed by Mamdani and his allies (5).

"It is the responsibility of the mayor and the City Council to find more savings," she said at the time.

Mamdani, meanwhile, has argued that the city cannot cut its way out of its fiscal pressures alone. While his administration identified roughly $1.7 billion in potential savings earlier this year through agency spending reductions, he has continued pushing for higher taxes on top earners as part of a broader affordability agenda (6).

Mamdani also suggested two different types of taxes on wealthy individuals in New York City to date. The pied-à-terre is one, but Mamdani has also asked for wealth and income tax hikes on top earners from 3.9% to 5.9% — it was even a part of his campaign platform (7).

This last part is a point of friction between the state and the city. In the 2027 budget, Hochul's office notes that it "does not raise income or statewide business taxes."

For Hochul, the pied-à-terre tax seems to be something of a compromise with Mamdani (8). But who's on the hook for paying it?

How the tax works

The proposed tax would affect non-residents of New York City who own a second home in the city valued at more than $5 million, provided that the property is not rented to a full-time tenant.

This includes:

• Out-of-state or overseas investors
• The ultra-wealthy using real estate as an investment vehicle

It will not apply to full-time residents of New York City, even if they own multiple properties or properties valued at less than $5 million. It will target global elites who benefit from the city's real estate market but do not contribute to its tax base through income taxes.

It's also a difficult tax for the rich to evade (9). The ultra wealthy can easily move to low-tax states to dodge an income tax, but the pied-à-terre tax targets something the rich might hesitate to give up: a luxury foothold in one of the world's most valuable real estate markets.

And the broader signal coming out of Albany is that absentee ownership is becoming increasingly political.

Taxes on luxury real estate, scrutiny around investor-owned housing and mounting pressure for affordability reforms are no longer fringe policy debates in major cities.

That doesn't mean investors should abandon real estate altogether, of course. But some may increasingly look for ways to maintain exposure to the market without concentrating risk in a single property. Or city.

What it means for investors

Investors are looking for ways to diversify their exposure geographically or avoid tying too much capital to a single high-cost urban market. That said, New York is both an economic and cultural center of the Western world, so it can be a lucrative market for wealthy foreign nationals because it's a "stable wealth hub" that could generate income (10).

That said, you don't have to be extraordinarily wealthy or a foreign national to take advantage of real estate markets. Regular people can also tap into this asset for passive income and start investing with as little as $100.

Backed by world-class investors, including Jeff Bezos, Arrived allows you to invest in shares of vacation and rental properties, earning a passive income stream without the extra work that comes with being a landlord of your own rental property.

To get started, simply browse through their selection of vetted properties, each picked for its potential appreciation and income generation.

Real estate taken one step further

Institutional investors have long used private-market real estate to stabilize portfolios against market volatility. This asset class offers potential tax benefits, regular cash flow, and returns that aren't strictly tied to shifting local property levies.

Historically, accessing these high-quality private-market assets required significant capital, much like the $5 million properties now being targeted by New York's new tax.

In recent years, crowdfunding platforms have opened doors for everyday investors to participate in these lucrative markets without the burden of absentee-owner taxes or the risks of concentrated individual ownership.