Taxing foreign billionaires won't make the rent less damn high

Should cities levy a special tax on absentee homeowners? The Fiscal Policy Institute thinks New York City should, and has proposed a special levy on vacation houses and other properties which owner-occupants don't use as full-time residences. Naturally some owners of such pieds-à-terres are not happy about the idea, and the world's smallest violin is playing for their plight. As a revenue-raising concept, this makes an enormous amount of sense. Taxing non-residents — which is to say non-voters — is a favorite pastime of state and local governments, who normally levy heavy fees on hotel rooms and rental cars, and the same logic applies to Manhattan crash pads.

But this idea is also being framed by some as a potential answer to New York City's housing affordability woes, when it's really neither necessary nor sufficient.

New York housing scarcity is about supply

(Stephen Smith)

If New York City wants to become more affordable, it needs to grow its housing stock at a faster rate. Between 1990 and 2000, New York City housing stock grew by 8.15 percent and then it grew by 5.32 percent in the next decade. The overall US population grew by 13.2 percent and then 9.7 percent during that same period. And New York City is a nice place to live. There are lots of interesting jobs there, good restaurants, New York Times Style section trend stories, etc. As long as the city adds housing units more slowly than the country adds people while also being a nice place to live, it will become less and less affordable.

It is true that a tax will shift some units out of the hands of non-resident owners and into the hands of new full-time residents, thus growing the city's population. But addressing the affordable crisis fundamentally requires new housing to be added at a faster rate. That requires zoning for more density, and generally making it easier and faster to build new structures.

Crimping demand is not necessary

Miami skyline (Alan Light)

The converse of the insufficiency of a crackdown on non-resident owners is that it's not necessary either. In a well-functioning housing market, the price of a newly built house will be somewhat higher than the price of building one (profit margin and all that) and the price of an old house will be a bit lower (depreciation, blah blah blah). Prosperous people will generally live in big brand-new houses, and the less affluent will live in smaller older ones. Building new housing units in tall, Manhattan-style residential towers is more expensive than mid-rise construction which, in turn, is more expensive than building single-family detached houses. But in present-day Manhattan, high rise housing typically sells for triple the physical cost of construction. That's the high cost of regulatory curbs on new housing supply. Miami has a much laxer permitting environment than New York, and while buying a brand-new condo in a fashionable section of Miami isn't exactly cheap, it's a lot cheaper than buying one in New York — notwithstanding very robust demand from foreign buyers in South Florida.

Absent such curbs, housing would be much more plentiful and much cheaper. And that's true whether or not some of the resulting units are owned by non-residents. Indeed, when you talk about practical or political impediments to adding housing supply in already-dense areas the main issue is that people worry that the units will be occupied. More people means more traffic, more competition for parking, and more stress on the mass transit system. Those are real issues. Creating housing abundance in expensive cities will require better management of existing infrastructure and creation of new infrastructure. But absentee owners don't really pose this problem. Someone who owns a condo and pays taxes while spending a majority of his time living elsewhere is in some respects the ideal homeowner.

The bottom line

If you are the mayor of a city that includes many non-resident homeowners, then by all means consider a tax hike for the purpose of getting more revenue. But do not think that this is going to solve your housing affordability problems.

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