|Crain's New York Business picture: David Junkin|
Housing in New York City has been a problem for too many years. No plan has been able to bring about the changes needed.
The controversial 421-a program, which uses tax abatements to entice developers to construct affordable housing, will die in its current form June 15. What comes next is very much up for debate.
An outline of a proposed revamp of the program was released earlier this month as part of the state budget proposal. The retooled program would be similar to the current version but eliminate eligibility for higher earners, permanently subject all affordable units to rent stabilization and extend the length of tax benefits for co-ops and condos, among other changes.
The real estate community overall has expressed pleasure that Gov. Kathy Hochul appears committed to replacing the expiring program. Developers maintain that if they don’t have a sufficient financial incentive to construct below-market-rate units, they won’t build them. Still others hope the program will be disbanded altogether and won’t be renewed in any form.
When the 421-a tax-incentive program was created in 1971, its purpose was to promote the production of housing. Since then it has been amended several times to mandate that builders include affordable housing units in developments in order to qualify for a rebate.
The tax break ceased for 11 months in 2016, when city and state officials couldn’t agree on its implementation, but a deal between unions, developers and then-Gov. Andrew Cuomo revived it. It was officially renewed in 2017.
The latest rollout of the program has sparked the creation of 9,071 affordable units in the city, according to data from the Department of Housing Preservation and Development. Since 2010 nearly half of all residential units built in the city were created via the program.
But if all the buildings receiving 421-a exemptions in fiscal year 2021 had paid taxes at a non-incentivized rate, the city could have collected $1.7 billion in additional revenue, City Comptroller Brad Lander has said.
Developers across the board have stressed the need to continue some type of affordable housing tax break—whether Hochul’s version or a different one—arguing that without one, there will be fewer affordable housing projects and higher rents.
“You can’t have it both ways. If we paid full taxes, you’d have developers need to—or be tempted to—bump up rents to help offset that tax,” said Aaron Koffman, managing principal at Hudson Cos.
Another often-cited issue with the 421-a program as it stands now is the income-eligibility level. Companies can include units that are affordable for households earning as much as 130% of the area median income—which is $155,090 for a family of four—under the current program.
At the Astor LIC, a rental building in Long Island City where a portion of the units are affordable at 130% of the AMI, the monthly rent for a two-bedroom apartment is $3,100. At 111 Varick in Tribeca, the building offered three one-bedrooms with a monthly rent of $2,689 for incomes at 130% of the AMI.
“Everyone knows that is not affordable housing,” Lander said.
Under Hochul’s proposal, rental apartments must be affordable for families earning between 40% and 90% of the area median income. She’s also calling for buildings with 30 or more units to keep their affordable apartments permanently affordable, rather than for just the 35-year period they’re required to maintain now.
The path forward
Eli Weiss, principal at Joy Construction, said Hochul’s proposed changes to the program were good news, as amending 421-a seemed to be a much better solution than letting it expire entirely.
“I think, given the overall difficulty of [the city] right now, not making any major changes to policies that could inhibit housing production is an intelligent move,” he said.
Lander, however, suggests eliminating the program and instead focusing on reducing the tax disparity between condominiums and apartment buildings to encourage developers to build rental housing.
“One problem is that our current tax code gives new condos much more favorable tax treatment than new rentals,” he said. “As a result, if you’re a rental developer, it’s harder to be competitive and buy property for development.”
The city has an array of affordable housing programs that offer tax breaks, subsidies and capital, he added, and those are the programs that provide rents at $700, $800 and $1,100 per month.
Judith Goldiner, who heads the Legal Aid Society’s civil law reform unit, said she also would prefer to see 421-a expire altogether, in part because the program is more beneficial to people selling vacant land than to people who need an affordable place to live.
“We have tried and tried and tried to modify it, to change it, to do different things to make it better, and all of those efforts, frankly, have failed,” Goldiner said. “We don’t see a way around just eliminating the program and using the money that you save to create truly affordable housing.”
There were the weekends without heat during a record-cold winter and the time a worker in a hazmat suit popped through the couple's rickety living room floor while doing asbestos abatement below them.
Those low points coincided with the building's transformation into luxury housing—with units priced at $12,000 per month—from lofts filled with artists. Varian and her husband, alt-rock songwriter Brad Roberts, are the building's last rent-stabilized tenants and pay in the range of $3,000.
Now Varian has new worries. In the long tradition of New York development battles, she and other SoHo residents spent the past year in a failed effort to block zoning changes they say threaten the historic character of their neighborhood and the future of their homes. They believe the rezoning could lead to redevelopment that eliminates existing rent-stabilized housing.
The local community board joined the fight along with preservationists, neighborhood coalitions, tenant advocacy organizations, the Sierra Club and good-government groups including the Municipal Art Society. There were echoes of the early 1960s, when urban activist Jane Jacobs stopped a plan by Robert Moses, the so-called Master Builder, to run a new Lower Manhattan Expressway through SoHo and Washington Square Park.The fight left bitter feelings, but they too are in the New York tradition, dating at least to the Civil War. The city has stumbled between rampant growth and well-intended regulation one century after the other—without ever quite succeeding in giving communities a sense of control over their destiny.