September was the cruelest month yet for tax revenue generated from real estate sales.
The number of transactions has slumped, draining city and state coffers of vital revenue, according to a report released Thursday by the Real Estate Board of New York.
All told, the city and state have missed out on $755 million in tax revenue this year as tax receipts have fallen by 42 percent from last year. Tax revenue is responsible for 53 percent of the city’s operating budget, although property taxes, which have remained steady, bring in far more money than transfer taxes.
The biggest drop was in office sales, which fell from $1.5 billion in September 2019 to $641.9 million in September 2020 — a 56 percent decline, the report found. The size of each transaction, which can easily extend into hundreds of millions of dollars, offers a windfall in good times. But when the market goes quiet, the effect is equally pronounced in the opposite direction.
Declines in investment and residential sales — both of which were down 47 percent from the same time last year — resulted in a 36 percent drop in collected real estate transaction tax, or about $62 million.
The number of residential transactions fell 52 percent in September from the same period last year, while investment sales saw just 91 fewer transactions during the same time period.
But those missed investment sales may have cost the public $50 million in lost revenue, while the change in residential transactions accounts for a smaller loss of $12 million.
Total tax revenue from investment sales declined 48 percent in September this year compared to last, while declining just 18 percent for residential sales in the same period.
Condominium sales volume dropped 31 percent over the period, from $1.1 billion down to $779.2 million.
Transaction revenues, however, are just one piece of the real estate tax pie. Property taxes, which are New York City’s largest single source of revenue, rose from March through August by 3.9 percent to $16.3 billion, Bloomberg News reported.
As a result, the city’s tax revenue fell by 3.5 percent from March through August compared to the same period last year, a smaller drop than expected. Mayor Bill de Blasio has sworn off raising property taxes as a way to fill the budget gap created by the pandemic. He has been seeking a federal bailout to avoid slashing the city’s $88 billion budget.
There is one bright spot: Transaction revenues were up 13 percent in September from the month prior, suggesting a recovery could be on the way.