REBNY President James Whelan called the loss of tax revenue “alarming.”
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New York State lost $139 million in tax revenue generated by a combination of residential and commercial real estate sales between March and April of this year and $72 million last month compared to April of 2019, a new report from the Real Estate Board of New York has found.
The decreases mark a 64% loss from March to April 2020 and a 48% loss from April 2019 to April 2020, according to the report.
The city’s real estate trade group released the data as part of a new monthly report that will track the revenue losses during the coronavirus pandemic, analyzing data from the New York City Department of Finance’s Automated City Register Information System (ACRIS).
“This dramatic loss in tax revenue is alarming,” said REBNY President James Whelan in a statement. “The real estate sector is the City’s economic engine. The pandemic has caused that engine to stall and we should expect such alarming trends to carry through May and June in the best-case scenario.”
Investment sales — which include multifamily buildings, offices, garages, gas stations, industrial properties, hotels, retail and commercial condos — saw the largest decline in transactions, resulting in a 71% decrease and a loss of more than $46 million in tax revenue from April 2019 to April 2020, according to the report. The decline in residential sales led to a 30% decrease and $25 million loss in tax revenue during the same time period.
While the trend follows similar revenue losses across the country, with state and local governments scrambling to fill the hole left by the decline in real estate transactions, New York City is in a unique position.
The real estate industry provided more than half of the city’s total annual tax revenue in the last fiscal year, according to REBNY. That’s more than double the contribution from personal income tax, which accounts for 21% of the city’s annual tax revenue.
This dependence increased last year when the city expanded its 1% surcharge on property sales over $1 million and increased the transfer tax, propelling the market in the early summer.
The so-called “mansion tax” now ranges from 1.25% for a $2 million sale to 3.9% for a sale of $25 million and above. The transfer tax increases from 0.4% to 0.65%.
The REBNY stressed in its report that the loss could impact funding of essential services.
“Tax revenue funds essential services such as salaries for first responders, building service workers, MTA employees, the maintenance of public parks and vital repairs and maintenance of the public transportation system,” the report reads. “The health of the real estate industry is critical to the health of both our City and our State.”
Jason Haber, a broker with Warburg Realty, agreed that the city and the real estate industry are inextricably linked.
“The loss of deal flow hurts brokers. but the loss of tax revenue hurts the entire city, from healthcare workers to teachers, the funds from our transactions powers the local economy,” Haber said. “Without the ferocious engine of real estate, the city will not be able to thrive.”