New York City’s new tax on high-value second homes has sparked a reassessment among wealthy property owners and potential buyers about the viability of maintaining pied-à-terre residences in the city, a reevaluation that mirrors similar trends in London. The so-called pied-à-terre tax, which took effect on July 1, targets second homes valued above $5 million with a progressive levy designed to generate $500 million annually for public services and to help close the city’s budget gap. The tax exempts properties used as primary residences by the owner, family members, or tenants.
The tax imposes an annual charge that brokers estimate could range from $40,000 to $100,000 on a $5 million apartment, climbing to between $160,000 and $240,000 for homes valued at $15 million. Despite the flurry of property valuations since the tax’s announcement, many owners and prospective buyers are hesitating due to uncertainty over the final tax liabilities, compounded by New York’s outdated appraisal system that may misclassify some properties’ value relative to the tax threshold.
Realtors and agents report a significant shift in behavior among potential purchasers. Cindy Scholz, global head of family offices at a New York brokerage, noted that within five weeks of the tax announcement, approximately half of her clients considering a pied-à-terre purchase switched to renting instead, while the other half remained committed despite the increased costs. Industry experts anticipate that some owners, particularly older individuals with properties in the $5 million to $7 million range who use them infrequently, may opt to sell due to the higher financial burden.
The tax adds to existing pressures on the luxury housing market in New York, where average prices in the prime segment have declined by around 5 percent over the past three years amid rising mortgage and interest rates. Some developers are responding by adjusting construction plans to emphasize more units priced below $5 million, which are exempt from the tax and thus may attract greater demand.
At the same time, renting out properties has become a more attractive option for owners facing holding costs, supported by a notable increase in rental demand and rents in the top ten percent of the market. Enquiries for Manhattan rentals with monthly rents exceeding $25,000 have risen by about 20 percent since the tax was confirmed, and rents have increased by 14 percent in this segment over the past year. Some owners are also employing strategies to avoid the tax, such as moving family members into their properties to qualify as primary residents.
London is experiencing comparable dynamics in its high-end second home market. Enquiries for luxury pieds-à-terre have dwindled amid rising purchase costs, notably a 19 percent stamp duty on properties over £1.5 million, up from 5 percent in 2010. Prime central London property values have fallen approximately 25 percent since 2014, with sales of homes over £7.5 million declining markedly in recent years. Additionally, service charges in London’s luxury residential buildings have risen sharply, compounding holding expenses.
Similar to New York, rental demand in London’s super-prime markets has grown, with prime central London rents rising 1.6 percent in the year leading to June and new high-end tenancies increasing by 17 percent. The appeal of ownership has also been affected by recent changes to tax regimes applicable to international buyers, including the introduction of the Foreign Income and Gains (FIG) regime and forthcoming council tax surcharges on homes over £2 million, which can make renting more financially advantageous in the medium term.
These tax and market conditions have prompted a strategic shift among property developers, who are increasingly retaining a greater proportion of luxury residences for rental rather than sale, as seen in developments in Mayfair and other central London locations.
The shifting landscape is also influencing where ultra-wealthy individuals choose to own second homes. Outside of New York and London, several European cities are emerging as attractive alternatives due to their favorable tax policies, growing supply of branded luxury residences, and welcoming environments for business and lifestyle. Cities such as Milan, Paris, Madrid, Lisbon, and Rome have seen a rise in new high-end developments catering to international buyers, with incentives including tax credits for certain industries and improved living conditions.
This diversification of preferred locations aligns with evolving expectations for pieds-à-terre, which buyers now often seek to serve multiple functions: as work bases, family homes during school holidays, or accommodation for children attending nearby universities. The increased flexibility and rising rents across European cities further enhance the value proposition of these alternatives.
Within the United States, some wealthy individuals are relocating from New York to cities like Miami, where state officials are capitalizing on the changes in New York’s tax landscape to attract affluent residents. Agents report that families who previously planned to maintain pied-à-terre residences in New York are now opting to forego ownership in favor of extensive hotel stays when visiting, reallocating their budgets to invest more heavily in properties elsewhere.
While the concept of owning a second home in global hubs like New York or London remains appealing for some, the financial and political environment in both cities is increasingly prompting reconsideration. Political rhetoric targeting high-net-worth homeowners, discussions of additional taxes such as potential levies on all-cash property purchases in New York (later withdrawn), and the combination of various holding costs contribute to a sense of uncertainty.
Nonetheless, the desire for accessible, easily maintained properties that can also generate rental income endures. What is changing is the geography and purpose of these investments, reflecting broader trends in taxation, market performance, and lifestyle preferences among affluent individuals worldwide.