Deal Reached On Controversial Tax Credit For Affordable Housing Construction

skyline south slope
Photo via ballsysalzy

After lengthy negotiations, a tentative deal has been struck on renewing a long-standing tax credit for developers.

The Real Estate Board of New York and city construction unions have reached an agreement on the 421-a tax credit program, which provides housing developers with a major reduction in their New York City property taxes. The program expired last year, and must still be renewed by the New York State legislature.

The 421-a program has required developers in certain neighborhoods to construct some affordable housing as part of their projects. It has been the subject of major criticism from local City Council Members Jumaane Williams and Brad Lander. Critics also include at least one affordable housing developer, who told us off the record that 421-a is “a giveaway to developers.”

“The deal reached…provides more affordability for tenants and fairer wages for workers than under the original proposal. While I would prefer even more affordability in the 421-a program, this agreement marks a major step forward,” Governor Cuomo said in a statement.

Bklyner reporting is supported by our subscribers and:

Wages were at the crux of the 421-a negotiations between developers and the building trades unions. Under the deal reached last week, developers who receive the credit must pay an average hourly wage of $60 (this includes benefits) to workers constructing buildings in Manhattan, and $45 to workers in Brooklyn and Queens, Curbed reported.

The wage deal applies to new buildings with 300 or more apartments, Curbed noted. Buildings in Brooklyn and Queens Community Boards 1 and 2 — “within a mile from the nearest waterfront bulkhead” — are covered by the wage requirement; in Manhattan, new buildings south of 96th Street are also included.

Developments that offer more than 50 percent of their units as affordable can opt out of the wage requirement, Curbed said.

How 421-A Works
The 421-a program was originally launched in 1971 to stimulate housing development in New York City, which was struggling with population loss and private sector disinvestment at the time.

Until the 421-a program expired last year, qualifying developers could obtain an exemption for up to 25 years from the increase in real estate taxes that would have normally resulted from their new development.

As property values recovered and construction surged after the 1970s, the 421-a program was modified in order to extract some affordable housing from development in neighborhoods where it was argued that housing would be built whether an incentive was provided or not.

In exchange for receiving a partial break on real estate taxes through 421-a, new developments in a defined Geographic Exclusion Area must provide some affordable housing — at least twenty percent of units.

The deal reached last week could increase the length of the property tax exemption to 35 years for developers who include affordable housing in their project.

Under the existing 421-a guidelines, all market rate rental units become subject to rent stabilization for the duration of the benefits. In addition, affordable rental units must remain rent stabilized for 35 years, the City states in its guidelines. The deal reached last week would increase this to 40 years. Changes to program income requirements would also enable more lower-income individuals to qualify, Governor Cuomo said last week.

The areas where some affordable housing is required under the 421-a program include:

— All of Manhattan

— Brooklyn: Downtown Brooklyn, as well as portions of Red Hook, Sunset Park, Prospect Heights, Park Slope, Carroll Gardens, Cobble Hill, Boerum Hill, East Williamsburg, Bushwick, East New York, Crown Heights, Weeksville, Highland Park, and Ocean Hill.

(NOTE: The City does not include Fort Greene in its list of neighborhoods but other reports say that sections of Fort Greene are included. We are double-checking this. According to the City, the Greenpoint-Williamsburg Waterfront area forms a “separate Waterfront Exclusion Area in effect since 2005, with different affordability requirements.”)

In other areas of Brooklyn, the tax credit can be utilized by developers free of any mandatory affordable housing inclusion.

— The Bronx: portions of Claremont and Crotona Park.

— Queens: portions of Long Island City, Astoria, Woodside, Jackson Heights, and the East River Waterfront.

— Staten Island: portions of St. George, Stapleton, New Brighton, and Port Richmond.

Mixed Record
Providing developers with decades worth of tax breaks to build affordable housing in New York City’s overheated real estate market remains controversial — as does the fact that housing developers outside designated areas receive the tax credit no matter what.

Curbed noted last week that applications for new residential developments “plummeted” in 2016 after the 421-a program expired.

The program is believed to have real impact — forty-two percent, or 5,885 of the 13,755 affordable units built in New York City in 2014 and 2015, were facilitated by 421-a tax breaks, Curbed reported in May.

But some elected officials have questioned whether tax breaks are the most effective way to encourage affordable housing construction. In 2014, the Manhattan Borough President’s office estimated that only 14 percent of all 421-a tax-exempt units are affordable to lower income households. “The impact of 421-a on new construction of affordable housing…remains minimal,” the BP’s office maintained two years ago.

New York City currently foregoes 1.1 billion in property tax from the 421-a program — “a sum that has exponentially grown since its inception in 1971,” the BP’s office added.

Local City Council Members Jumaane Williams and Brad Lander have slammed 421-a, saying that the legislation has helped to line the pockets of large developers and paved the way for rapid gentrification across the city. The Flatbush Tenant Coalition has also organized multiple protests against 421-a. See where other local lawmakers stand on 421-a here.

Another issue raised by critics of 421-a is whether developers are complying with the program’s requirement that affordable units be designated with the State as “rent-stabilized.”

A lengthy analysis by Pro Publica last month reported that two-thirds of the 6,000-plus rental properties receiving tax benefits from the 421-a program “don’t have approved [421-a] applications on file and most haven’t registered apartments for rent stabilization as required by law.”

Affordable housing developer, Community Preservation Corporation, called the 421-a program “far from perfect,” but added in a statement last week that it “has been critical to making rental development financially feasible, creating mixed-income communities, and spurring low- to moderate-income housing production in the outer boroughs.”

share this story

Comments

  1. Hooray, the sooner they can get this deal done the sooner they can overbuild housing. With current prices let’s hope they work double time

  2. You do realize that NYC has been under building for more than decade already. Just to keep up with population growth, about thirty thousand units a year would be needed. I believe our highest year over the past ten was twenty five thousand units and some years were as low as eight thousand.

    If they build around forty thousand a year for the next ten years, then we might actually catch up to housing demand over the course of a decade. I believe we have a better shot on getting to Mars by then.

  3. Council Members Jumaane Williams and Brad Lander have done it again. This law will help, not harm the city. Lander and Williams have embarrassed the city enough this year with their voting themselves a 32% salary increase while at the same time voting for legislation which will cost the average shopper in this city at least $200 a year more with their nickel per bag fee. And let us not forget how these two refuse to stand with other council members while pledging allegiance to flag.

  4. Douglas Elliman does a research article quarterly I believe on NY real estate. Its interesting to see that in their latest report incentives like free months rent are going up in the city as there is maybe the beginning of oversupply in the market. We’re super early to talk about oversupply but I’d love it if they keep on building and flood the market with new places. Again I don’t think anything is changing this week but its the right trend to see things moving downward. A lot of the pressure is also at the high end right now so its not really a “Main Street” savings going on but as they say, “the rents are too damn high” lol https://www.elliman.com/pdf/e67c5ff7f43e9a118ebcff2759564189f6416473

    Bloomberg coverage:
    https://www.bloomberg.com/news/articles/2016-11-10/manhattan-s-renters-score-record-incentives-in-apartment-glut

    Lease-signing sweeteners, such as a month of free rent or payment of broker fees, were offered on 24 percent of new rental agreements in October, up from 10 percent a year earlier, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. It was the biggest share for any month since the firms began tracking the data six years ago. Landlords also agreed to cut an average of 3.1 percent from their asking rents in order to reach a deal.

    Property owners in Manhattan are working harder to lure tenants who now have the ability to bargain-shop amid a surge of high-end apartment construction that shows no signs of abating. The final months of the year are considered to be the slowest time for apartment leasing in New York City, adding to the urgency for landlords, said Jonathan Miller, president of Miller Samuel.

    “Concessions are one way to keep the vacancy rate in check and keep the buildings as full as possible,” Miller said in an interview. “It’s a baseline metric we’re going to be dealing with for the next several years at least”

  5. You do realize that only affects the ultra luxury market, which is their primary business and isn’t nearly reflective to the city markets in total. So if you like to only review stats that pertain to less than a tenth of the market, be my guest.

    Brooklyn and Queens have an availability rate of below 2% and really hasn’t changed, even during this past recession. Bronx and Staten Island have been slightly above 2% and Manhattan, due to the highest concentrations of luxury rentals is at 3%. That being an all time high due to the vacancy rate in the ultra luxury markets topping above five percent. That is what their report focuses on due to it being the primary customer base.

  6. See: “A lot of the pressure is also at the high end right now so its not really a “Main Street” savings going on”

    Also I’d note that the luxury market drives up the prices of the lower markets. Real Estate is very interconnected but as I’ve said before its still very early to crow about a trend. I’m just hoping it continues it could easily reverse and rents go up another 100%

  7. Its almost all at the very high end, also known as ultra luxury. I’m employed in the industry the designs a good deal of them. The interesting factor is that vacancy rates at that end of the market isn’t concerning all owners, mainly the asset value.

  8. Regardless of what one thinks about 421a, the new law about plastic bags is long overdue, and doesn’t have to cost the average shopper anything.

Leave a Reply

Your email address will not be published. Required fields are marked *