The New York Times recently released an in-depth investigation into the influx of foreign wealth in the New York City luxury real estate market.
The piece, by Louise Story and Stephanie Saul, notes that Mayor Michael Bloomberg courted foreign buyers throughout his time in office.
“If we could get every billionaire around the world to move here, it would be a godsend,” he famously said in a 2013 radio interview. “They are the ones that pay a lot of the taxes, and we take the tax revenues from those people to help people throughout the entire rest of the spectrum.”
He believed that wealth would eventually trickle down and stimulate the economy as those foreign billionaires spent money in New York, employed household staffs, and paid their property and income taxes.
But that equation has proven problematic. Since most of these foreign billionaires are not living and working full-time in New York City, they are not paying city income taxes, and because New York City has some extreme tax breaks for luxury real estate projects, they are not paying substantial taxes on their real estate holdings, either.
These property tax savings come from an affordable housing program known as 421-a. Essentially, 421-a promises huge, long-term tax breaks on luxury properties as long as the developers also build affordable and moderate-income apartments.
The legislation allowed luxury properties such as uber-luxury high-rise One57 to receive a 95% tax break.
But there are significant problems with 421-a. Not only is it under investigation by US attorney Preet Bharara, but some developers are reportedly “double-dipping” by receiving benefits for future luxury projects with previously built affordable housing units.
Opponents of the controversial program — which is set to expire this summer — estimate that the city has lost out on hundreds of millions of dollars each year.
And most of these foreign buyers use their apartments only occasionally, meaning they aren’t pumping cash into the city’s economy. One recent study found that more than half of the apartments in the midtown neighbourhood that encompasses “Billionaires’ Row” sit empty for most of the year.
So even though wealthy foreigners certainly love New York for their gorgeous penthouse views and strong returns on their real estate investments, New York should maybe think twice about loving them so much in return.
NOW WATCH: Executive Life videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.