Indian cities could learn from Zohran Mamdani’s ‘pied-à-terre tax’ plan for New York City

New York Mayor Zohran Mamdani’s push for a “pied-à-terre tax” on luxury second homes owned by the ultra-rich is a fiscal idea Indian cities should pay close attention to. New York State lawmakers passed Mamdani’s tax proposal in May

A pied-à-terre tax is a surcharge on high-value residential properties that are not primary residences. In cities such as New York, London, Vancouver and Paris, these homes are often luxury apartments owned by wealthy investors, global elites, or absentee owners who keep them vacant for most of the year.

They benefit from urban infrastructure, public services, security, transport networks and soaring land values generated by the city economy, yet contribute relatively little to municipal finance relative to their wealth.

New York’s proposal targeted second homes worth more than $5 million and is expected to raise roughly $500 million annually.

The proposal emerged from a multi-billion-dollar budget gap in New York City, where the new administration argued that the burden of urban recovery should not fall on ordinary residents through broad property tax hikes.

India’s cities face a similar – and arguably far deeper – fiscal crisis. Yet the country continues to ignore one of the most undertaxed forms of wealth in the economy: urban real estate.

Urban India today produces nearly two-thirds of the country’s gross domestic product, but municipal governments control less than 1% of total public revenues. This mismatch is at the heart of India’s collapsing urban governance model. Cities are expected to provide essential infrastructure such as roads, drainage, public health, waste management, transport and housing for rapidly growing populations – but they do so with extraordinarily weak fiscal capacity.

The consequences are visible everywhere: flooded roads in Bengaluru, collapsing drainage systems in Mumbai, worsening air pollution in Delhi, chronic waste crises in Kochi, and crumbling public infrastructure across second-tier cities. Municipal corporations remain dependent on erratic grants from state governments, politically-mediated transfers and debt.

Property taxation in India is astonishingly low by international standards. According to World Bank estimates, India collects only around 0.2% of GDP through property taxes, compared to an Organisation for Economic Co-operation and Development average of roughly 1.1%.

Even within municipal finance, collection efficiency is poor because of undervaluation of properties, incomplete property records, exemptions and political reluctance to tax affluent urban property owners.

Indian cities have become enormous engines of speculative real-estate wealth accumulation. Luxury apartments in Mumbai, Gurgaon, Bengaluru and Hyderabad are being treated like financial assets.

Government estimates and research, based on the Census 2011, shows that urban India had around 11.1 million vacant housing units, representing about 12.4% of the total urban housing stock, despite persistent housing shortages and widespread homelessness.

Cities create land value, but private owners capture most of the gains while municipalities remain fiscally starved. A pied-à-terre tax offers one way to partially correct this imbalance.

Unlike taxing production or employment, taxing luxury real estate is economically less distortionary. A surcharge on high-value second homes does not discourage industrial investment, manufacturing output or job creation. Wealth stored in speculative urban property is relatively immobile and cannot easily relocate overnight in the same way financial capital can.

More importantly, such a tax directly targets accumulated wealth rather than productive activity. Given that India’s indirect taxation has expanded significantly after the 2017 rollout of the Goods Services Tax regime, and the burden of consumption taxes is disproportionately borne by ordinary households, taxing luxury urban property can help rebalance public finance.

India’s existing municipal property taxes are generally low and politically constrained. The affluent neighbourhoods of metro cities are often undertaxed relative when compared to actual market values.

A pied-à-terre tax would target non-primary residences above a high threshold – say Rs 10- Rs 20 crore – and that are vacant or infrequently occupied luxury properties. It would affect only a tiny segment of elite property owners while generating substantial municipal revenues.

Mumbai is an obvious example.

The city has some of the most expensive real estate in the world alongside infrastructure deficits and housing inequality.

The Economic Survey tabled in Parliament in 2018 showed that Mumbai had nearly five lakh vacant homes.

A progressive urban property surcharge could therefore serve three important functions.

First, it could generate local revenues. The 74th Constitutional Amendment envisioned empowered urban local bodies, but most municipalities remain financially subordinate to states. Fiscal autonomy will improve urban governance by decreasing the dependence of municipalities on state governments.

Second, such a tax could curb speculative ownership in elite housing markets. In Canada, Vancouver’s tax on empty homes was linked to both revenue generation and housing utilisation.

Third, it could change urban taxation by requiring wealthier property owners to contribute proportionately more than ordinary residents. In India, ordinary residents are often burdened with municipal taxes such as levies and user fees.

Implementing a pied-à-terre tax in India will require serious reforms in property valuation and grappling with the varied aspects of land ownership in India. Often, municipal records are outdated, assessment mechanisms opaque and enforcement is weak. Overhauling property valuation will require digital mapping and geographic assessments.

A pied-à-terre tax is no magic fix for municipal finances. But it represents an important principle that cities must have the power to tax concentrated urban wealth created within their own boundaries.

Like Mamdani in New York, India’s municipalities must ask who should pay for the city before the urban crisis deepens further.

Muhammed Riyas is a faculty member at Symbiosis Institute of Business Management, Bengaluru.