Issue 103 – Climate Change is Causing a Flood of Real Estate Problems

536 2nd Street GARDEN

155 West 68th Street 1203

641 Fifth Avenue 33F34EF

446 East 149th Street

450 East 52nd Street 11FLDP

53 West 53rd Street 24D

53 West 53rd Street #PH78

320 East 42nd St 2403

519 West 23rd Street 7

260 Park Avenue South 10I

1593 Deerfield Road

136 East 56th Street 8H

51 Crosby Street 3

445 Lafayette 110C

1001 Fifth Avenue 110C

53 West 53rd Street #38C

53 West 53rd Street #30B

53 West 53rd Street #66

53 West 53rd Street #72B

53 West 53rd Street #21A

53 West 53rd Street #53A

53 West 53rd Street #17B

53 W 53rd St #PH76

53 West 53rd Street #71

53 West 53rd Street #20B

53 West 53rd Street #16F

Issue 103 – Climate Change is Causing a Flood of Real Estate Problems

November 1, 2024

It seems just about every week, we receive an update on a hurricane, flood, or tornado making its presence known around the globe and highlighting the loss of homes — and more importantly, loss of life. The damage to structures and how the natural disaster is stopping bustling cities in their tracks is always in the news. Climate change is indeed taking its toll, and not just exclusively on coastal regions. In addition to impacting lives physically, it also impacts them financially through diminished market value and increased insurance costs. To wit: Climate change is becoming the most significant impact on real estate value.

Just last month, we witnessed massive destruction in Asheville, North Carolina, where storm seasons had not typically been a concern. Sadly, that storm was followed by Hurricane Milton, which targeted the Tampa, Florida, area. In October 2024, Tampa Mayor Jane Castor warned residents in evacuation zones that they would die if they stayed behind. We now brace ourselves against extremely devastating weather events from May through November. Many New Yorkers live in fear of another Hurricane Sandy.

One of the by-products of these increasingly intense hurricanes is how homeowners or would-be buyers will be impacted in terms of homeowner’s insurance coverage, without which one cannot secure a mortgage. Moreover, the city’s flood maps are being rewritten, further increasing insurance premiums for many owners; some may even be dropped by their current insurance provider, resulting in properties in highly desirable neighborhoods being unable to sell — or to sell well.

According to The Atlantic, “Across the United States, homeowner’s insurance is getting more expensive. In storm-battered Florida and coastal Louisiana, they’ve gone up a lot; the same is true for scorched Colorado and California. But even Ohio and Wisconsin have seen rate hikes greater than 15 percent in a single year.” Clearly, everyone is affected by this, not just in hurricane-prone areas. And if buyers can’t secure homeowner’s insurance or premiums are prohibitively expensive, they won’t be able to take on a mortgage.

The Economist details this trend as well, explaining, “Private insurers burned by huge payouts after disasters are abandoning risky markets. Homeowners are turning to state-backed insurers as a last resort, which offer less coverage for a higher price. When these plans cannot cover claims, taxpayers are often left with the bill. As climate change continues, the uninsurable parts of America will only grow.” Thus, this outcome becomes the most significant divide in value nationwide and globally.

Yale Connections concurs in a recent story explaining that as storms surge, so do insurance premiums. “Climate futurist Alex Steffen has described the climate change–worsened real estate bubble this way: ‘As awareness of risk grows, the financial value of risky places drops. Where meeting that risk is more expensive than decision-makers think a place is worth, it simply won’t be defended. It will be unofficially abandoned. That will then create more problems. Bonds for big projects, loans and mortgages, business investment, insurance, talented workers — all will grow scarcer. Then, value will crash, a phenomenon I call the Brittleness Bubble.’” This scenario is not something that can be repaired easily.

That publication also cites a 2023 study in the peer-reviewed journal Nature Climate Change that has drawn attention to a massive real estate bubble in the U.S. — property overvalued by $121 to $237 billion because of current flood risk. It warns, “Declines in property values due to climate risk are unlikely to be temporary, particularly for properties affected by sea-level rise … local governments may need to adapt their fiscal structure to continue to provide essential public goods and services.”

According to a 2024 report from Realtor.com, almost 44.8% of homes in the United States, with a total value nearing $22.0 trillion, confront at least one type of severe or extreme climate risk from either flood, wind, wildfire, heat, or air quality.”

It appears FEMA [Federal Emergency Management Agency] is underfunded, understaffed, and has minimal authority. Many are calling on officials to revamp and increase funds to the organization — and create a National Safety Board.

We are no strangers to the impact of hurricane season in NYC. “New Yorkers face thousands of dollars of hidden costs to consider when purchasing a home in a flood-prone area from flood insurance to major construction projects,” a recent story in The New York Times reported. “Across the five boroughs, over $3.6 billion worth of one- to three-family homes sold last year were likely to flood before the end of a 30-year mortgage, according to a new report from Rebuild by Design, a climate resiliency nonprofit. That represents roughly one out of every five such homes sold in New York City in 2023,” the article continued.

It then quoted two other sources: “Flood insurance premiums can range from $350 to $10,000 a year, depending on the size and type of home, policy specifics and the flood history and zone of the area,” said Monroe Shannon, a program manager for resiliency and insurance at Neighborhood Housing Services of Brooklyn, a nonprofit group.

“FEMA mapping does not account for stormwater. There’s a misperception that if you’re not in one of these mapped flood zones, then you don’t need flood insurance, and that’s not the case,” stated a climate expert.

Despite all the perils involved with buying in areas in flood zones and reports of massive moves inland, The New York Times separately reported that some intrepid New Yorkers are throwing caution to the wind — and that New Yorkers continue to spend billions on houses in flood-prone areas despite growing awareness of the effects of climate change.

One such intrepid New Yorker interviewed in the article said, “If you want a house with a good view, close to the water, you know what the deal is.”

Regardless of one’s comfort with risk, this problem will only grow, so ignoring it is foolhardy. Going forward, the real estate community must be fully aware of the impact of climate change and bring their clients up to speed. If those needing insurance can’t get it or afford it, that will eventually impact sales because of the inability to secure a mortgage.

Some experts feel sellers must disclose flood risks when selling their property. In addition, they say insurance rates should be based on the market. In the future, more and more people will need to buy coverage, but those who can’t handle increasing rates might consider canceling flood insurance to their detriment. In fact, Zillow just announced it will include climate risk data for each listing — signaling a definite value creation predicated on mitigating risk.

For now, the real estate community must do its due diligence to best advise clients about potential risk versus reward, allowing one to make sound investment choices and get the most value from their property ownership. While the 2024 hurricane season has passed, extreme storms are the new normal, and we all need to remain aware of climate change and its impact, especially as we move forward.

Issue 123 – The NYC Pied-à-Terre Tax and its Implications on the Real Estate Market

July 1, 2026

Lately, we have been hearing the slogan “Tax the Rich” frequently. This is often espoused in reference to the newly implemented pied-à-terre tax in NYC.

It implies the rich aren’t paying taxes. The reality is quite different. Yes, there are some very wealthy people who pay far less in taxes than others earning the same or similar amounts. But New York City taxpayers pay the most local taxes in all of the U.S. The laws that need to be addressed are federal ones, not local. The loopholes touted are affecting just a select few, when in reality most high-net-worth folks are indeed paying a lot of taxes — especially New Yorkers, who pay $21 billion more to the state every year than the state spends on NYC.

The latest controversy stems from New York City’s enactment of a pied-à-terre tax—an annual surcharge on high-value homes that are not used as a primary residence. If you own a luxury second home in the city, you may now have a recurring tax exposure on top of other friction costs. The tax is also an annual recurring fee, not a one-time hit like the mansion or transfer tax, which makes it more pervasive.

According to a recent report by the NYC Comptroller, the legislation is expected to phase in from July 1, 2026, through June 30, 2028 (fiscal years 2026—2028), with the first phase focused on city “market value” thresholds. Early reporting indicates that the tax applies broadly to high-end second homes and provides different treatment for single-family homes versus co-ops and condos. For houses valued at roughly $5 million or more, the surcharge has been reported at 0.8%–1.3%. For co-ops and condos, the initial phase appears tied to Department of Finance values starting around $1 million, which can translate into a much higher market sale price.

I am seeing a lot of confusion about how this will be implemented. Essentially, people believe that any sales price over $5 million will be affected, when in fact Phase 1 will be based on land value, not the transactional equivalent sale price. For example, a property valued at $844,000 may not be captured by the pied-à-terre tax. It’s less than $1 million and nowhere near $5 million.

However, Phase 2 (for fiscal years 2028–2031, beginning July 1, 2028) becomes a much more speculative concern. Early indications suggest that the tax will be based on the more transactional side of things. It may even work on factoring a five-year average; we simply don’t know yet.

Some savvy buyers are trying to close before Phase 1 starts. Others are trying to keep their price below $5 million and then essentially work any credits as a side agreement to avoid the potential second-phase hit.

As Business Insider reported, “In its first two years, the tax will rely on Department of Finance ‘assessed values’ to determine which homes will face a new charge, while the city and state work out a new valuation system.”

Likewise, a recent CNBC segment details: “Billionaire and Citadel CEO Ken Griffin became the face of the tax after New York City Mayor Zohran Mamdani posted a video in front of Griffin’s penthouse apartment announcing the tax.”

I believe the pied-à-terre tax punishes people who use our services less than full-time residents. They also pay massive transfer and mansion taxes and typically don’t use our schools — a huge portion of real estate tax revenues.

My view is that this will not destroy the New York market, but it will absolutely change behavior at the margins. Buyers are already more sensitive to carrying costs, monthly common charges, assessments, the mansion tax, financing costs, and now an additional annual second-home tax. The psychological impact may be just as important as the financial one.

The highest end of the market will feel this first. For discretionary buyers, especially those comparing NYC to Palm Beach, Miami, Aspen, London, or other global luxury markets, this becomes another line item in the decision-making process. It may not stop a true New York buyer, but it may slow them down, sharpen their negotiations, or push them toward renting instead of buying.

As a result, I expect high-end rentals to benefit. A buyer who wants a New York City presence but does not want the tax complexity may choose to rent a trophy apartment instead. That could strengthen demand for luxury rentals, especially furnished, turnkey, white-glove inventory.

For co-ops, the impact may be more nuanced. Co-ops already have a smaller buyer pool because of board scrutiny, financing restrictions, and liquidity requirements. If the tax makes second-home buyers more cautious, certain high-end co-ops may feel additional pressure, especially those with significant monthly maintenance or less flexible sublet policies. That said, as I always point out, the very best buildings with scarcity, provenance, service, and location will still hold value.

I have not yet seen a wave of people selling solely because of this tax, but I have absolutely seen buyers pause, ask sharper questions, and reconsider the total cost of ownership. The conversation has shifted from “What is the purchase price?” to “What is my all-in annual exposure?”

Other markets have tried versions of second-home or vacancy-style taxes, with mixed results. In some places, they created revenue and pushed underused housing back into circulation. In others, they caused buyers to become more cautious or redirected capital elsewhere. New York is different because it remains New York — but the city cannot assume that capital is captive.

Again, citing Business Insider, “Hochul and Mamdani estimated the tax could raise $500 million.”

So, are there any benefits? Potentially. If the revenue is used responsibly, it could support city services and housing priorities. It may also create a clearer distinction between end-user demand and purely discretionary ownership. But from a market perspective, the risk is that it adds friction at a time when the luxury buyer is already highly selective.

My advice to second-home buyers is simple: do not overreact, but underwrite carefully. Understand whether the property will be classified as a primary residence or pied-à-terre. Review the building’s carrying costs, taxes, assessments, liquidity requirements, and resale profile. Buy quality, buy scarcity, and buy something you would be comfortable owning through a softer market.

It’s important to keep all in perspective: Mayors come and go, and when you start impacting the very hands that feed you in one of the most capitalistic cities that ripple through the nation, I think we stand the test of time on how we are going to navigate this.

The New York City buyer is not disappearing. But the casual, optional buyer now has one more reason to pause — and in this market, that matters.