Real-Estate
Why $100 million apartments in NYC are empty
Some buildings are half-empty
Before we start, let me share this crazy fact with you. If you own a house, you are probably paying property tax every year. It’s normally calculated on how expensive your house is. Well…
Home in Bronx, NYC, value: $234K, annual property tax: $3.912
Home in Brooklyn, NYC, value: $2.1M, annual property tax: $157
Is it just me, or is this incomprehensible? If you want to understand what this fact has to do with the article, give me 5 minutes of your precious time to explain this.
All New York City residents know this word: Billionaires Row.
Billionaires Row is a set of ultra-luxury skyscrapers near and around Central Park. The most expensive flat in this neighboorhood has a price tag of just under $170 million.
You might think that the billionaires who buy this kind of apartment consider this to be their prime residence, but it’s not. Instead, these luxury apartments are empty most of the year.
These are some stats to prove this thesis:
Home occupancy rates in 2 buildings on Billionaires Row: 46%
Home occupancy rate across the city: 76%
Why?
You might think why: why would you buy such an expensive apartment and not enjoy it. It’s because it’s the perfect, perfect investment.
We expect the wealth gap between the rich and the poor to get bigger over the coming years. This will result in more luxury apartments being bought.
But this is actually one of the safest investments. See, when you invest in stocks or cash, the company or bank has a chance of going bankrupt, leaving you with almost nothing.
While with this investment, it’s completely safe. Your apartment will never go bankrupt, and nobody can break into a home 400+ meters in the sky. Your neighbors also won’t break in because you have none, each floor only has one apartment.
And the next advantage is even better…
Taxes
I know you didn’t click on this article in order to hear about taxes, but it’s actually one of the main reasons why billionaires buy these apartments.
Billionaires almost pay zero taxes on these luxury apartments. This is due to the system which calculates the property taxes in New York.
In New York, homes are taxed based on the amount they can be rented out for. But since no one is going to rent these $100 million apartments, it’s difficult to tax them.
These luxury apartments end up being taxed just like regular condos worth just a fraction of the cost.
A Loophole
In order to comprehend this section of the article, we must first understand a piece of the US tax code. In the 1970s, NYC introduced the 421-a exemption.
This law was put in place in order to encourage real estate developers to build houses in the city so that residents wouldn’t leave for the suburbs. Today, this law is being rebranded as the Affordable Housing New York Program.
This program allows real estate developers to get up to 100% of their property taxes erased. The only thing they need to do is: 1/5th of the condos need to be considered as affordable housing. The houses on the Billionaires Row qualify for this program.
You might think: how can these $100 million apartments qualify for affordable housing??? Well, it’s because the real estate developers construct buildings in other neighborhoods that do qualify.
Let’s take the example One 57. Just because they build 66 units of affordable housing in the Bronx, they qualify for the program which lets them pay almost no taxes. Just this building alone will escape $65 million worth of future taxes over the coming 10 years because of this exemption.
It’s estimated that New York City mises $1,7 billion in tax money every year due to the 421-a exemption.
The fact I showed you at the beginning of the article was all about this tax exemption. The building in Brooklyn used this program to its advantage while the one in the Bronx did not.
Zombie Urbanism
This refers to a neighboorhood of which the apartments or houses are owned by individuals who rarely visit their home.
Billionaire’s Row is a perfect example. Half of the units are empty while the other half are owned by billionaires who rarely visit the condo. The particular district in New York City isn’t the only one dealing with this problem.
In Paris, more and more people are buying second residences. In some areas, a quarter of all the homes is a second residence.
In London, the most expensive neighborhoods have almost no activity during the night.
In Luxembourg City, you rarely see anybody during the holidays or weekends.
These cities are not the only ones, here are a couple more: Toronto, Vancouver, and Melbourne.
A “pied à terre”, litterally translated as “foot on the ground” is a second residence.
In 2019, a “pied à Terre” tax was proposed for the city of New York. This would require any home with a value of more than $5 million to pay an annual tax. It was refused after heavy lobbying from real estate developers. Instead, a one-time fee was introduced for all luxury apartments in the city.
432 Park Avenue
This is one of the most expensive skyscrapers in NYC. Construction of this $1.25 billion building ended in 2015. This building is most famous for its $169 million penthouses on the 96th floor.
This building has been notorious for swaying when there is heavy wind. This is due to the high height to width ratio. A normal building like the Empire State Building has a ratio of 3 to 1. With 432 park avenue, the ratio is 15:1.
If you want to know, the thinnest building in the world is 111W57 street. It has a ratio of 1:24 meaning it’s just 18 meters wide while being 433 meters tall.
The engineers have tried to stop the swaying by leaving out the glass windows on some floors to let the wind flow through the building. This has caused power outages and floodings.
Final Thoughts
It’s almost certain that the wealth gap will grow in the coming years which will lead to more sales of luxury real estate. This will likely result in more protests, which we are already seeing now and the middle class is getting screwed.
As more and more of these luxury apartments get built, the more the price of essential housing in New York City will go up. I think that Billionaires Row had a significant impact on the overall real estate market in NYC.
I hope this article was interesting and made you realize a couple of things. If you want to support me as a writer and get access to all of my stories and the thousands of stories from thousands of passionate content creators:
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