Whatever your political beliefs, it’s undeniable that New Yorkers are fleeing the state and NYC in particular. So why are people fleeing New York in droves? Is it because of current events like the pandemic or more endemic issues that New Yorkers had been dealing with for years?
We believe this mass migration, the latest blow for New York home owners and sellers, is a function of many endemic issues with the latest pandemic related shutdowns simply being the last straw for many.
From speaking with home sellers looking to move out of New York, we were interested to learn that one of the biggest reasons for fleeing New York had nothing to do with the cost of living or taxes, which had always been there, but rather with the extreme politicization of everyday life.
It starts from the moment you step outside of your apartment. You’re cramped up due to the continuing lockdowns, nothing is open, and you just want to at least get some fresh air during your daily walk which has become the highlight of your day.
However, the moment you step outside, the politics begin. Why? From the way you wear a mask (or don’t wear a mask as is often the case from what we see in the streets) and how close you pass by others on the sidewalk. We’ve literally had physicians tell us that they were lectured for wearing a mask incorrectly while walking, socially distanced, outdoors.
It doesn’t help that it’s an election year either. Tensions are high in the streets, as one seller told us who had already moved to California.
One seller in FiDi who had already moved his family out to the suburbs told us that he gets extremely anxious anytime he’s back in the city. “It feels like people are out to get you, to cut you off in line or on the road,” he said.
We listen to all of our customers and can certainly empathize with them. Whereas before, the people were the best thing about New York (where else could you find such a sheer diversity and concentration in the United States?), now it seems that the pandemic and related shutdown has made it one of the worst things about the city.
Pro Tip: Today, Miami ranks among the very top for home search locations on various popular real estate search sites like Zillow, thanks to an exodus of New Yorkers who have transplanted themselves there. Check out our Miami real estate predictions for 2021 to learn where we think home prices are headed in the Magic City.
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As Bloomberg once said when confronted with New York’s high cost, “New York is a luxury product” worth paying for. We hope and believe that in the medium and long term that this will be true again, as over the long run the future of cities is bright.
However, given that the cost of living in NYC is three times the national average and the significant advances we’ve made in internet bandwidth, videoconferencing and cloud based services, remote work is now not only possible, but easy to implement for a large swath of the population.
Furthermore, as the lockdowns and quarantines continue and offices in Midtown Manhattan continue to remain mostly empty, companies are realizing that they don’t need so much expensive corporate office space after all.
Many large companies in industries critical to New York’s success like technology and finance have already embraced work from home approaches, some indefinitely.
Even companies that still have hope for a return to the old times have mostly let employees work remotely for a year or more. As these employees prove that with today’s technology, their productivity and happiness only increases when they no longer have to sit through lengthy commutes or useless meetings, more and more of these arrangements will become permanent.
Employers will realize that not only can they save money on office space, but they’ll be able to pay their employees less when they move to lower cost locales. Perhaps more disturbingly, some of these employers will realize that if their employee can work from the beach in Thailand, then a much cheaper Thai contractor can as well!
Pro Tip: Excluding a few technology companies that have embraced a fully remote model, we believe the majority of large corporations will embrace a hybrid model where employees must come in to the office several days a week. Employees have apparently divined this intention as well, as evidenced by the surge in suburban home prices in the tri-state area.
We’ve always coached that one of the things to consider before you buy an apartment in NYC is to understand what your tax liability will be once you become a New York and/or NYC resident. It’s a well known fact that the combined federal, state and local taxes for New Yorkers are comparable to those of the Nordic countries often referenced by the press, yet the city government can’t seem to fix the potholes in Tribeca while Sweden has free healthcare.
So just how high are taxes for New Yorkers? Well, for a self-employed, high earning small business owner they can face 18.78% in state and local top marginal tax rates composed of the following:
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10.9% New York State Income Tax
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3.876% New York City Income Tax
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4% NYC Unincorporated Business Tax (UBT)
Don’t forget that working for yourself means you’re responsible for both the employer and employee portions of Social Security and Medicare taxes.
That means an additional 15.3% Self Employment Tax on the first $137,700 of your income for the 2020 tax year.
What will top tax rates look like for New Yorkers if Democrats sweep the White House and Congress in November 2020?
The most noticeable changes will be the increase in the top federal income tax rate from 37% to 39.6%, the removal of the cap on Social Security and Medicare taxes above $400,000 and the elimination of the 20% deduction for Qualified Business Income for pass through entities.
To keep it simple, we’ll focus on the first two changes and illustrate how the top marginal tax rate for a high earning, self-employed small business owner will be significantly higher than the 62% reported by CNBC.
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8.82% New York State Income Tax
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3.876% New York City Income Tax
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4% NYC Unincorporated Business Tax (UBT)
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39.6% federal income tax
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15.3% tax on all income below $137,700 and above $400,000
Even though effective tax rates1 might be lower due to lower tax rates for lower tax brackets, the above tax increases if implemented would mean some high earning New Yorkers would face a marginal tax rate of 71.6%, a rate higher than anywhere else in the developed world. On top of this, Governor Cuomo, Mayor DeBlasio and the single party legislature in New York have threatened a variety of tax increases to plug New York’s growing budget deficit.
The question now remains whether the top 1% of taxpayers in New York who pay half of all taxes will decide to come back from their second homes or temporary arrangements in lower cost jurisdictions.2
Some who advocate for tax increases say that “rich people are price insensitive” and that as long as New York re-opens and there’s something to do, people will come back. The fate of New York’s real estate market will be determined by what happens next.
1Effective tax rates approach and start becoming equal to top marginal tax rates as income increases.
2Governor Cuomo seems to agrees with the Laffer Curve theory that tax revenue eventually decreases as tax rates increase. As a result, his veto is the only thing preventing immediate state and local tax increases that his party demands. However, he has threatened to bow to pressure from his party and approve tax increases if New York and other states aren’t bailed out by taxpayers with another national spending package.
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As we’ve previously discussed, top marginal income tax rates in some high tax cities and states like NYC are similar if not higher than the Nordic countries that the press keeps referencing as a standard bearer for higher taxation.
Unfortunately, bigger government, especially in the US, is notoriously inefficient for a variety of reasons including triple layers of bureaucracy and regulations, unions and not having a homogeneous population.
Why is it that we spend $2.4 billion per mile to build a mile of subway here in NYC, while the developed world spends on average $350 million per mile?
The MTA did a recent study where they admitted that 2 out of 7 Sandhogs union members, critical to subway construction, were paid to do nothing. The NY Times reported that union members were paid $400 per hour for weekend overtime, officials accepted gifts from contractors who presumably then quoted multiples of what a job should cost, and more nonsense.
Perhaps this is why it’s such a common sight in NYC to see a group of 10 city construction workers surrounding a pothole, joking around, with one guy drilling a hole that they had just filled last week (so they have something to do).
Pro Tip: Many New York transplants to Miami and South Florida say they moved because they feel like they didn’t have a voice in government in New York. They felt that they faced high taxation without representation. If this sounds like you, then you’ll be pleased to learn that closing costs for buyers in Florida are lower than closing costs in New York.
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The last reason why people are leaving New York in droves is the lack of political representation or a voice in how things are run for anyone who disagrees with those in power.
Because New York has recently become a one party state, with Democrats controlling both houses of the state legislature as well the city and the state’s executive branch, people who disagree with the way things are being run have literally no way to enact change.
For example, if you disagree with the way the lockdown is being handled or to further tax increases, you literally have no say. The Democratic party has a virtual monopoly it seems on New York, and any rival political parties are fringe groups at best.
As a result, many sellers trying to move out of New York have told us that they’re finally saying no to taxation without representation, and moving to sunnier and friendlier states like Florida, Texas or even New Hampshire. For the sake of New York real estate, we hope these trends will reverse, and reverse soon!
Pro Tip: In case we can’t convince you to stay, then check out our guide on where to live in Miami if you’re just getting started, or our Miami neighborhood guide if you already have a sense of whether you’d like to live in a condo vs a house, on the beach or in the city etc.
“In 2004, he packed the Supreme Court; in 2009, he altered the electoral system.” I truly hope the “Democratic establishment” has a grip on the hard left in this country, because otherwise Caracas is where we’ll be headed.
https://www.theatlantic.com/ideas/archive/2020/02/venezuelas-suffering-shows-where-illiberalism-leads/606988/
Don’t worry. The Dem losses in the House means that in 2022, the House is more likely to revert to Republican control, setting up a lame-duck presidency.
The Democrats won’t be able to pack the Supreme Court, abolish the Electoral College or make DC and Puerto Rico states. They will struggle to impose the Green New Deal.
Seems like the people have spoken.