The long Thanksgiving weekend promises to be slow in and around City Hall. That will give Mayor-elect Bill de Blasio a chance to catch up on some reading and perhaps reflect on the changes he has promised to bring to post-Bloomberg New York. We’d recommend that he consult a new study conducted by Cushman & Wakefield’s capital markets group—it shows that, for the third straight year, New York is home to the world’s largest real estate market.
There are two ways of looking at that undeniably positive finding. One could conclude that New York clearly is doing something right, and, whatever it is, it ought to be reinforced with smart, pragmatic public policy.
Or if a politician were so inclined, one could conclude that it’s high time that the real estate industry and all those high-flying developers pay more in taxes to support new social programs and generous raises for public employees.
There is good reason to fear that the mayor-elect, along with a new cadre of ideologues in the City Council, will choose the latter option. That would be a catastrophic mistake.
Investors from around the world have been investing billions in New York over the last several years, to the chagrin of competitors like London, Tokyo and Los Angeles. The city saw an astonishing increase of 39 percent in real estate volume through the second quarter of 2013. The Stoler Report noted that London saw a 6 percent increase. Not bad but pretty paltry by New York standards. Overall, the world’s cities saw a 21 percent increase in volume, which is impressive but, again, significantly below New York’s increase.
Will that level of investment continue under a new administration that has not been shy about portraying the investor class as enemies of the people? That remains to be seen, but suffice it to say that merely asking the question suggests that developers and investors have reason for concern.
High-end investors from out of town have been expressing their anxieties sotto voce as the clock winds down on the Bloomberg-Giuliani years. Word has it that many will be watching the new mayor very carefully over the next year as he attempts to balance his campaign rhetoric with the practical problems of governance.
If the new administration and council seek to hike real estate taxes to pay for new social programs and fat contracts for public-employee unions, investors will be quick to look elsewhere. And they won’t be alone. Although politicians are loath to admit it, real estate taxes affect all New Yorkers, not just wealthy developers and homeowners. Middle-class families, renters and homeowners alike, and small business owners are even more vulnerable to real estate tax hikes than the wealthy are. They may not be as mobile as the wealthy, but they, too, will look elsewhere if they are forced to pay for unsustainable contracts and programs.
New York’s prosperity depends on global risk-takers who currently see the city as a good bet. Their investments have created thousands of good jobs for city residents. The taxes they pay sustain the city’s top-flight services.
While it is certainly true that there’s insufficient affordable housing in the city—and we applaud Mr. de Blasio’s intentions to create more—those numbers would be far worse if we didn’t have so much capital looking to invest in NYC. There’s plenty of affordable housing in Detroit, for example.
Frankly, the city needs investors’ confidence as well as their investments. The mayor-elect must consider this very carefully.