New York state legislators are unlikely to renew a tax incentive program that has been used in nearly every major New York City residential project for the past 50 years, bringing a blow to the promoters, the governor and the mayor.
Gov. Kathy Hochul lobbied for a revised and renamed version of the grant, but she never won broad support in the Democratic-controlled Legislature, whose members were loath to renew a lucrative tax break for real estate sector ahead of elections this fall, lawmakers say. and real estate agents.
The grant, known as 421a, is the city’s most generous tax relief, costing New York about $1.77 billion a year in lost tax revenue. It has subsidized the construction of hundreds of thousands of market-priced apartments and condominiums across the city, mostly in Manhattan, and generally forces developers to build housing below market.
But critics say it amounts to a tax giveaway for developers in exchange for too few units for low-income New Yorkers, and sometimes none at all.
“421a is a broken and absurdly expensive band-aid placed on top of New York’s broken property tax system,” said Brad Lander, the New York City Comptroller who advocated for an end to the tax break . “It’s good that it is not renewed.”
The immediate impact of the expired grant, which officially ends on June 15, will not be felt for years.
Developers have warned that without the tax incentive, new housing construction would be too expensive to pursue and could be significantly reduced in New York at a time of rising house prices. In recent months, builders have been racing to innovate on new projects to take advantage of existing tax relief ahead of the deadline, including in Brooklyn’s Gowanus neighborhood, which was rezoned for large-scale residential projects last month. last year.
Matt Murphy, executive director of New York University’s Furman Center for Real Estate and Urban Policy, said rental projects taking advantage of the 421a program before it ends will continue to open in the coming years as the construction would be completed.
After that, developers would likely avoid building multi-family homes at market price and instead build projects like condominiums that generate higher returns, he said. Without a 421a, the city’s property tax system slightly favors condo development because condo owners may qualify for a homeowner’s tax break.
The end of 421a may not negatively affect the creation of new housing for tenants at lower income levels, Murphy said, because such projects receive federal subsidies.
Still, he added: “It’s not like losing this will help make the city more affordable. All it does is introduce huge uncertainty into development and exacerbate long-term housing shortages.
The current tax relief essentially freezes property taxes on new projects, including luxury developments, for up to 30 years, only requiring owners to pay property taxes due on site prior to construction. Lawmakers have let the subsidy expire in the past, only to relaunch it soon after.
But there were no immediate signs that could happen this time, lawmakers and property officials conceded, although Ms Hochul said the legislation could be reintroduced in 2023.
“It’s an important goal, but I don’t know if there’s interest in legislative bodies right now to achieve it this year,” Ms. Hochul said at a news conference this week. “Let them do their thing and then I’ll continue my conversation backstage.”
For months, the governor has tried to rally colleagues in the Democratic Party to support a renewal, but a new set of progressive members in Albany and New York, backed by increasingly vocal housing advocates, have attacked the tax relief for promoters. They argued that no version of the tax incentive could adequately stem the housing affordability crisis.
Ms Hochul’s proposed replacement, renamed 485w, was rejected by lawmakers as too similar to the current program.
“A lot of people have very serious reservations about 421a as it’s currently constituted,” said Assemblyman 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 what we pay for with 421a.”
Proponents of a revised tax incentive said it would help alleviate the city’s severe housing shortage, a key driver of its affordability crisis. While the city saw a 22% increase in new jobs between 2010 and 2018, the city’s housing stock only grew by 4%, according to the nonpartisan Citizens Budget Committee.
Ms Hochul’s proposal was intended to allay critics’ main concerns – that the deal has deepened the city’s housing affordability crisis by encouraging the construction of luxury towers instead of lower-cost homes. They say too many units marketed as affordable are only available to families earning well over $100,000 a year — well above the city’s median household income — and are often more expensive than priced apartments. market in the same neighborhood.
Many units target much higher income levels, charging “affordable” rents to families of four earning upwards of $173,420, which is much higher than the average for surrounding neighborhoods. The median household income for all of New York City is $67,046, while it’s $42,000 in the Bronx, the lowest tier in the city.
Until the last revision of the program, in 2016, some projects could take advantage of the tax agreement without building affordable housing. This included the residential development that received the largest property tax reduction, Jackson Park in Long Island City, Queens, which benefits from a $21 million annual reduction in property taxes that nearly eliminates the property tax bill. site. It has 1,871 luxury units and no “affordable” apartments.
Governor Hochul reportedly maintained the tax incentive while for the first time requiring developers to include below-market units in every rental project.
The 421a grant has been divisive almost since its inception. It was enacted in the 1970s during a financial crisis in New York, when city officials feared no one was building anything. Some politicians wanted it to expire in the early 1980s, fearing it would be a financial boon for developers with few strings attached.
However, over the next 40 years, the tax relief was preserved and refined, slowly adding various accessibility requirements. The deal has become increasingly popular among developers over the past 20 years, especially on huge projects in Manhattan, increasing the city’s annual tax revenue loss.
The demise of the 421a program is the latest major legislative setback for the real estate industry, which once wielded nearly unparalleled lobbying power in Albany. In 2019, state lawmakers approved sweeping new rent regulations that extended many statewide tenant protections over industry objections.
It is also a blow to the construction industry which, in a moment of unity, has joined promoters in demanding that the tax deal be preserved as it includes guaranteed wages for construction workers. on major projects 421a. Workers are paid an average of $45 an hour for developments in Brooklyn and Queens, and $60 an hour in Manhattan.
“As we try to emerge from this pandemic, it is important for our economy that development continues, but responsible development that not only provides good jobs but is part of the economic engine,” said Kyle Bragg, president of the Service Employees Local 32BJ. International Union, which represents 85,000 workers in New York.
Mayor Eric Adams also lent his support to maintaining the tax relief. He said the program would create more affordable apartments and create well-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 opinion piece in The Daily News in March.
As the legislative session draws to a close, important bills on other housing issues remain in limbo. One measure would enact a so-called eviction for cause, which would prohibit landlords from not renewing a tenant’s lease unless there has been a major violation, such as breaching the terms of the lease. Another would allow New York hotels to be converted into affordable housing.
Grace Ashford and Mihir Zaveri contributed reporting.