New York state legislators are unlikely to renew a fiscal stimulus program that has been used in nearly every major housing project in New York City for the past 50 years, with a significant blow to developers, the governor and the mayor.
Governor Kathy Hochul pushed for a revised and renamed version of the grant, but it never garnered widespread support in the Democrat-controlled legislature, whose members were not in favor of a lucrative tax break for the United States before this fall’s election. real estate sector, according to lawmakers. and real estate officials.
The grant, known as 421a, is the most generous tax benefit in the city, costing New York City approximately $1.77 billion annually in foregone tax revenue. It has subsidized the construction of hundreds of thousands of market-ready apartments and condominiums in the city, mostly in Manhattan, and typically requires developers to build a number of rental properties below market price.
But critics say it amounts to a tax exemption for developers in exchange for too few units for low-income New Yorkers, and sometimes none at all.
“421a is a broken, absurdly expensive plaster to be put on top of New York City’s broken property tax system,” said Brad Lander, the New York City auditor who has called for the end of the tax credit. “It’s a good thing it’s not being renewed.”
The immediate impact of the expired subsidy, which officially ends on June 15, will not be felt for years.
Developers have warned that without the fiscal stimulus, new housing construction would be too expensive to pursue and could be scaled back significantly in New York City at a time of escalating home prices. In recent months, builders have rushed to flesh out new projects to qualify for the existing tax break before the deadline, including in the Gowanus area of Brooklyn, which was repurposed for large-scale housing projects last year.
Matt Murphy, the executive director of New York University’s Furman Center for Real Estate and Urban Policy, said rental projects that take advantage of the 421a program before it expires will continue to open for years to come once construction is complete.
After that, developers would likely avoid building multi-family homes at competitive rates and instead build projects such as condominiums that generate higher returns, he said. Without 421a, the city’s property tax system is somewhat favorable to apartment development, as apartment owners may qualify for a homeowner tax break.
The end of 421a should not negatively affect the creation of new homes for lower-income tenants, Mr. Murphy, because those projects benefit from federal grants.
Still, he added: “It’s not like losing this will make the city more affordable. It just adds an enormous amount of uncertainty to development and, in the long run, increases the housing shortage.”
The current tax break essentially freezes property taxes on new projects, including luxury developments, for up to 30 years, requiring owners to pay only the property taxes owed on the site before construction. Legislators have dropped the subsidy in the past, only to revive it shortly after.
But there were no immediate signs this time around that could happen, lawmakers and real estate officials have admitted, although Ms Hochul said the legislation could be reintroduced in 2023.
“This is an important goal, but I don’t know if there is currently any interest from lawmakers to achieve this year,” Ms Hochul said at a news conference this week. “Let them do their job, then I’ll continue my conversation from behind the scenes.”
For months, the governor tried to rally colleagues in the Democratic Party to support a renewal, but a new batch of progressive members in Albany and New York City, backed by increasingly vocal housing proponents, have attacked the developer’s tax cut. They argued that no version of the tax incentive could sufficiently stop the housing affordability crisis.
Ms Hochul’s proposed replacement, renamed 485w, was rejected by lawmakers for being too similar to the current program.
“Many people have serious reservations about the current composition of 421a,” said Councilman Jeffrey Dinowitz, a Democrat who represents parts of the Bronx. “We should be doing things with affordable housing, but I don’t think we’re getting value for money with 421a.”
Proponents of a revised fiscal stimulus said it would help alleviate the city’s severe housing shortage, a key driver of the affordability crisis. While the city saw a 22 percent increase in new jobs between 2010 and 2018, the city’s housing stock grew just 4 percent, according to the impartial Citizens Budget Commission.
Ms Hochul’s proposal was intended to allay critics’ main concerns — that the deal has exacerbated the city’s affordability crisis by encouraging the construction of luxury towers rather than low-cost homes. They say too many units marketed as affordable are only within reach of families making more than $100,000 a year — much higher than the city’s median household income — and often cost more than market-leading apartments in the same neighborhood .
Many units target much higher income levels and charge rents that are “affordable” to families of four earning more than $173,420, which is much higher than the average in their surrounding neighborhoods. The median household income for all of New York City is $67,046, while it is $42,000 in the Bronx, the lowest in the city.
Until the last revision of the program, in 2016, some projects were able to take advantage of the tax deal without building affordable units. That included the residential development that got the biggest tax break, Jackson Park in Long Island City, Queens, which enjoys a $21 million annual property tax cut, nearly eliminating the tax bill on the site. It has 1,871 luxury units and zero “affordable” apartments.
Governor Hochul is said to have maintained the tax incentive, while for the first time he demanded that developers include units below market price in any rental project.
The 421a grant has been divisive almost from the start. It was introduced in the 1970s during a New York City financial crisis, when city officials feared that no one would build anything. Some politicians wanted it to end in the early 1980s over concerns that it would be a financial boon to developers with few commitments.
Over the next 40 years, however, the tax benefit was maintained and refined, gradually adding various affordability requirements. The deal has grown in popularity among developers over the past 20 years, especially on large Manhattan projects, increasing the city’s annual tax loss losses.
The demise of the 421a program is the latest major setback in real estate legislation, which once had nearly unparalleled lobbying power in Albany. In 2019, state lawmakers passed sweeping new rent regulations that expanded numerous tenant protections statewide, despite industry objections.
It is also a blow to the construction industry, which, in a moment of unity, has joined developers in calling for the tax deal to be preserved as it includes guaranteed wages for construction workers on large 421a projects. Workers receive an average of $45 an hour for developments in Brooklyn and Queens, and $60 an hour in Manhattan.
“As we try to get out of this pandemic, it’s important to our economy that development continues, but responsible development that not only creates good jobs but is part of the economic engine,” said Kyle Bragg, the president of Local 32BJ of the Service Employees. International Union, representing 85,000 workers in New York City.
Mayor Eric Adams also supported maintaining the tax break. He said the program would create more affordable apartments and provide high-paying jobs for construction workers.
“If we are serious about expanding the city’s affordable housing stock, we need a serious plan on the table to make it happen,” the mayor wrote in an op-ed in The Daily News in March.
As the legislative session winds down, important bills on other housing issues remain in limbo. One measure would introduce so-called eviction for good reason, which would prohibit landlords from not renewing a tenant’s lease unless there was a serious violation, such as violating the lease. Another would allow hotels in New York City to be converted into affordable housing.
Grace Ashford and Mihir Zaveri reported.
