2019 was a challenging year, defined by political and economic uncertainty. New taxes made deals more expensive for both sides, new regulations made owning certain property types more burdensome, and wariness as the market settled led many buyers to proceed with caution.
The following tax and regulation changes had a particular impact:
Last year was the first that we could see the impact of the 2018 Tax Cuts and Jobs Act, which capped tax state and local tax (SALT) deductions at $10,000 -- effectively doubling the SALT tax paid by the average New Yorker. (Previously, the average deduction claimed in New York was just over $21,000.) We don’t expect the tax to change, despite efforts in the House to repeal the act, but we may start to see more movement in 2020 as buyers adjust to the new normal.
NYC Rent Laws
With fewer options to recoup the costs of maintenance or upgrades, and fewer chances for a property to become free market, sweeping rental laws passed in June have made it less attractive to be a landlord in New York City. We saw an immediate impact on multi-family townhouses in Q3 of this year, with a 30% decrease in transaction volume over 2018.
As hikes in New York City and State transfer tax made deals more expensive for sellers, a new progressive mansion tax affected buyers, particularly in the townhouse market, with mansion tax increasing from 1% of purchase price to upwards of 3.9% at greater than $25m. We saw the impact in Q3 with an 18% decrease in townhouse dollar volume over the previous year, and a 19% decrease in transaction volume. These taxes will continue to have an impact in 2020, but we expect more activity as buyers and sellers adjust their expectations.
Building Emissions Regulations
In perhaps the most confusing legislative move of the year, the city’s Climate Mobilization Act, a package of bills meant to target skyscrapers, will impact some townhouse owners, too. Part of the law mandates that owners comply with Sustainable Roof requirements, which apply to new construction and renovations. Not sure if your home is impacted? This chart is a great resource.
Outlook for 2020
Although we have seen a tick up in activity since Labor Day, the majority of buyers are taking their time, wondering if the market will get worse. However, as the impact of the “year of regulation” becomes more clear, we expect uncertainty to subside and buyer urgency to pick up, particularly as deals become apparent. In fact, we have seen an uptick in inquiries, offers and deals.
Based on our own activity over the last year, I believe there are some buyer opportunities in the market. We have sold assets which were, in some cases, greater than 20% off peak pricing. Buyers for available units in new developments are receiving significant concessions which are not recognized in the gross sales price.
Interested in knowing how the market will look for your own property in the coming year? Get in touch at firstname.lastname@example.org.