Real Estate Taxes Now Fund Half the City Budget, REBNY Data Reminds Mamdani

Property taxes, long the silent engine of New York’s budget, are drawing a sharper focus as political leaders debate their true impact and perils for the city’s fiscal future.

When Ken Griffin, the hedge fund billionaire, bought a $238 million pied-à-terre on Central Park South, the tabloids had a field day. Such astronomical transactions fuel perceptions of property excess in Gotham. Yet, to the quiet bean-counters of municipal finance, these deals underpin something far more prosaic: New York City’s ability to function.

A recent report from the Real Estate Board of New York (REBNY) lays bare just how gargantuan this dependency has become. For fiscal year 2025, real estate-related taxes will contribute a record $39.6 billion to city coffers, accounting for nearly half of all locally raised tax revenue. The lion’s share—some 90%—comes from the city’s property tax, a levying mechanism often grumbled over, but apparently unmatched in its fiscal reliability.

This rather invisible engine, as REBNY terms it, now funds more of municipal government than income, corporate, and sales taxes combined. The scale is, frankly, prodigious. To put $39.6 billion in some context: it exceeds the total annual salaries paid to the city’s 280,000 public workers by $3.5 billion, and forms the bedrock underpinning an eye-watering $127 billion city budget—more, the board notes, than the combined spending of Boston, Chicago, Dallas, Houston, Miami, Philadelphia, San Francisco, and Washington, D.C.

Yet not all city leaders seem fully conversant with the scale of this contribution. Mayor Zohran Mamdani, in a recent video, seized the populist tenor, lambasting Griffin’s property purchase and, by implication, the broader class of wealthy property owners. “Apparently unaware,” as the REBNY report put it with uncharacteristic asperity, of the benefits the sector brings, Mamdani’s take reflects a wider tension. For many voters, the optics of opulence matter more than the ledgers of municipal finance.

For all its stability, this mighty revenue stream is loaded with problems. Taxes on commercial properties—which include multifamily rental housing, offices, shops, hotels and factories—make up some 77% of the total property-tax intake, even though residential properties are far more numerous. Echoes of this structural imbalance go far beyond mere distributive fairness: attempts to recalibrate taxation towards smaller homeowners typically founder, as politicians blanch at antagonising an electorate already squeezed by housing costs.

The city’s dependence on property taxation also bodes uneasily in a shifting economic climate. As remote work and higher borrowing costs weaken demand for office and retail space, the valuations behind much of this tax base look somewhat less buoyant. Were these pillars to wobble, a budget hole on this scale would be, to put it drily, very difficult to fill by trimming waste or raising other taxes alone.

Nor are New York’s fiscal oddities unique. Globally, big metropolises—from London to Hong Kong—lean hard on property taxes, which tend to be both stable and difficult to evade. Yet few cities exhibit such complete entanglement. San Francisco’s property tax, for example, accounts for less than a quarter of its general-fund revenue, while London’s council-tax structure, for all its quirks, operates on far lower valuations. In the Empire City, by contrast, every mayor dines at the banquet, regardless of their views on the guests who supplied the food.

A delicate equilibrium, showing strain

The economic benefits from real estate may be immense, but they risk breeding a puny sense of policy imagination. Real estate taxes reassure bondholders and credit ratings agencies; they also tempt city leaders to ignore the broader sclerosis in New York’s competitiveness. A city so dependent on one sector is vulnerable not just to property downturns, but to stagnation in housing supply and quality—problems that now afflict both housing advocates and pro-growth reformers.

Politically, the issue has become a polite but intractable quarrel. Property owners, and their political avatars, argue forcefully that any threat to the “invisible engine” should be met with regulatory humility. Progressives, meanwhile, eye the inequalities manifest in both sky-high rents and the city’s inability to build sufficient new affordable housing. Neither can seem to move the dial on deeper reform of the tax code, which remains legendary for its complexity, loopholes, and arbitrary levies, a problem gestating since the days of Ed Koch.

One thing, however, is certain. If the city’s property-tax base contracts—as newer, leaner office towers stand partly empty, and residential exodus dampens apartment values—the pressure will mount rapidly on leaders to find alternative sources of revenue or cut services. For now, fiscal prudence demands policymakers heed, rather than deride, the industry’s contribution. “We hope all officials, regardless of administration, will absorb and take the findings into account,” said Basha Gerhards of REBNY—an understated admonition, but a salient one.

Wry observers might note the perennial truth of New York: the city runs on sentiment and spectacle, but is paid for by paperwork and real estate. Cash from property taxes may be distasteful to some, but until a plausible alternative turns up, the invisible engine must continue its work—more visible now, and perhaps more fraught, than ever.

The path ahead is hardly straightforward, but pretence is dangerous. Policymakers can decry plutocratic buyers, but they neglect property taxes at the city’s peril. New York, like all great cities, thrives on contradiction and compromise. The fiscal bedrock, uneven as it is, remains the keystone of the whole edifice. Wise leaders would do well to remember where, and how, the bills are actually paid. ■