Policies intended to curb luxury development, such as a construction freeze, have a counterintuitive effect. They transform the existing luxury housing stock into a limited, finite resource. This artificial scarcity dramatically drives up prices for those assets, making them 'gold' and potentially worsening inequality.

A capital gains tax exclusion for home sales, set in 1997 and not indexed to inflation, now traps seniors in large homes. Facing a substantial tax bill if they sell, many choose not to downsize. This prevents family-sized homes from entering the market, exacerbating the inventory shortage for younger generations.

Umansky argues that policies like L.A.'s ULA tax, a transaction tax applied even on sales at a loss, scare away national developers. This political climate causes them to invest in other major cities, starving the local market of new development and investment capital, even for prime sites at a discount.

To address the housing supply crisis, policymakers should index the capital gains tax exclusion for home sales to inflation. The current thresholds, unchanged since 1997, create a disincentive for long-term homeowners to sell. Adjusting the exclusion would incentivize downsizing, releasing existing housing stock onto the market for new buyers.

New rent control laws don't just limit rent; they fundamentally cap the equity upside for real estate investors. By limiting potential cash flow growth from an asset, these policies make building or upgrading apartment buildings less attractive. This discourages the very capital investment needed to solve the housing supply crisis.

The housing crisis is primarily a supply problem manufactured by regulation. National studies show that permits, fees, and zoning delays account for 25% of a single-family home's price and over 40% of an apartment's cost. Deregulation is the most direct path to solving the affordability crisis.

For cities needing revenue, a tax on luxury second homes (pied-à-terres) is a strategically sound option. It targets the wealthiest demographic, who are least likely to relocate due to the tax, and offers the secondary benefit of potentially increasing the available housing stock.

A single high-end buyer like Ken Griffin, willing to overpay for a penthouse, can make an entire development project financially viable. Tax policies that deter these buyers risk halting new construction and reducing overall housing supply for everyone.

The proposed tax on non-primary residences targets buyers who can easily purchase elsewhere. This could trigger a massive drop in demand for high-end properties, negatively impacting the entire New York real estate market, not just the wealthy.