Tag Archives: real estate

Albany Agrees to Resurrect the 421-a Tax Exemption

Taxpayers and Tenants Should be Disgusted

Albany has come to an agreement on that includes resurrecting the 421-a real estate tax exemption, with a vote on the full State budget expected today. There is no acceptable reason that everyone except luxury real estate developers should be expected to pay their taxes. Taxpayers and tenants should be disgusted.

We will need the $1.4 billion – and growing – that we spend each and every year on 421-a to fill the holes that will be left in the local budget by Trump’s federal budget cuts for essential services. 421-a does little to actually create affordable housing, with 79 cents of every 421-a dollar spent going to luxury development, and only 11 cents going to support affordability. A growing body of evidence suggests that the 421-a exemption doesn’t even accomplish the most minimal public purpose of incentivizing new market-rate development.

Resurrecting 421-a is also a body blow to tenants because changes in the law, for the first time, include the interests of the construction trade unions, which severely limit the ability of tenant-friendly legislators to use the program as leverage to defend or strengthen rent regulation against and anti-tenant legislators. Rent regulation is New York City’s most effective affordable housing and community-stability preservation program, which is now left far more vulnerable. This is especially true because under the new agreement, 421-a expires in 2022 and rent regulation expires in 2019, stripping tenants of essential leverage.

What is the New 421-a Program?

The new 421-a program, now titled “The Affordable New York Housing Program,” is essentially an expanded and amended version of the expired June 2015 421-a exemption that passed the legislature, but with modifications intended to resolve the conflict created from a trade union wage provision that was inserted at the last minute. This subsequently led to legal complications and suspension of the exemption.

The new 421-a program does not improve the affordable housing requirements passed by the legislature in June 2015, but it does add significant cost to the taxpayer.

The June 2015 version was citywide and would have been used by almost all new residential development projects over 6 units, allowing developers affordability Options A, B, C, and D. (See image below for an explanation of the options) The new program adds Options E, F, and G and requires developers to pay higher construction wage levels. The new Options E, F, and G also extend the length of the tax exemption to an unprecedented 35-year, 100% exemption. This is a major increase in the lifetime value of the exemption to the developer and a major increase in the cost to the New York City taxpayer.

The program currently costs taxpayers $1.4 billion a year – and growing – and the NYC Independent Budget Office have estimated that the changes to the new program will add significant additional cost.

The proposed new REBNY program is citywide, and would widely be used across most neighborhoods. Development of new buildings with 300+ rental units will be required to participate in the program in some areas and eligible to participate in all other areas of the City. The new program is exceptionally generous to the developer, and most will take advantage of this financially generous opportunity.

And the increase in cost won’t just come after year two of the extended tax exemption; it will come immediately. Developers will find the enhanced benefit irresistible since it allows them to not pay taxes for an additional ten years. We will see a rush of developers applying for the new 421-a program and see developments from the last 1.5 years retroactively being granted 421-a, at a great cost to taxpayers.

No additional affordable units, or deeper level of affordability will be generated by the REBNY proposal, and the increase in the length of affordability is minor. The primary beneficiaries will be market-rate and luxury real estate developers, who will have their already substantial public subsidy increased by an estimated 22.5% in each new building. A fraction of the increased value given to the developer will be passed along in the form of higher wages for the short-term construction labor.

How Do the New “Options” Work?

• Option E is allowed within any of the Enhanced Affordability Areas, and requires 10% of the apartments be affordable at 40% of Area Median Income (AMI), 10% at 60% of AMI, and 5% at 120% AMI. The average hourly construction wage must be $60. Additional public subsidy is not allowed.
• Option F is allowed within any of the Enhanced Affordability Areas, and requires 10% of the apartments be available at 60% of AMI, and 20% at 130% AMI. The average hourly construction wage must be $60 an hour. Additional public subsidy is allowed.
• Option G is allowed only within the Brooklyn and Queens Enhanced Affordability Areas, and requires that 30% of the new housing is affordable at 130% of AMI. The average hourly construction wage must be $45 an hour. Additional public subsidy is not allowed.
• Any building with 300+ rental units outside of the Enhanced Affordability Areas can opt-into Option G, which, given the extraordinary value of the 35-year 100% abatement to the developer, is the most likely outcome.

More Evidence That 421-a Can Wait

The important debate around the 421-a tax exemption may come to a head in Albany by Friday, but an article in yesterday’s Crain’s New York makes clear that new development is moving ahead either way, a fact that should change the debate.

Getting the 421-a program right matters. We owe it to our taxpayers and our communities. Legislators who are supportive of tenants know that making decisions about 421-a within the budget process decouples the issue from the push to strengthen rent-regulation, undermining the leverage and importance of crucial tenant concerns.

The Crain’s article reports on plans for a big, new $160 million privately-built market-rate rental development in the South Bronx, saying:

“[The developer] will wait until the end of the year before breaking ground on the projects in the hopes that the 421-a program…will be reinstated by then. [But the developer] was able to purchase the development sites inexpensively enough to allow them to build the projects without the benefit, as well.”

This makes it clear; 421-a is about increasing the projects profits, not about whether or not the project moves forward. And it further confirms ANHD’s recently released white paper, which found the surprising fact that new rental development has not slowed in the past year since the 421-a exemption was suspended. We could have saved ourselves the trouble. The Crain’s article illustrates our point just as succinctly and clearly as the charts in our white paper.

The big real estate lobby (REBNY) is trying to rush approval of an even more costly 421-a exemption through the Albany budget process by April 1^st. The program is widely understood to be bloated and inefficient. Bloated because is costs taxpayers $1.4 billion a year. Inefficient because for every $1 spent on the program, only 11 cents supports affordable units while 79 cents subsidizes luxury units.

But REBNY is arguing that we must get the exemption back quickly because the market absolutely will not build new rental housing anywhere in the City without it, housing that our growing city needs.

The data clearly shows that the sky is not falling – new building construction permits are back up to their recent average, especially in the softer outer-borough markets, in part because the cost of development sites quickly came down without the artificial stimulation of the 421-a program.

An opinion piece in the New York Daily News last week by State Senator Parker and Assembly Woman Walker exposes the history that the worst elements of the 421-a program were created by Donald Trump when, as a real estate developer, he sued Mayor Koch because he didn’t want to pay taxes on Trump Tower. They argue we are now facing an unprecedented crisis because of President Trump’s Federal budget cuts, and make the case that Albany should not rush to include the 421-a program in the April 1^st budget.

“It’s time for us to say no to Trump. His real estate tax exemption shouldn’t be rammed through the Albany budget process, but instead should be negotiated separately and apart from the budget, which is due April 1. We must take the time to get the details right.”

We agree with Senator Parker and Assembly Woman Walker. If you care about new housing development – if you care about construction jobs – it is not necessary to rush into a bad 421-a deal with REBNY that cost taxpayers even more and gives us even less.

Dump Trump’s unaffordable N.Y. real estate tax break, aka 421-a

By Latrice Walker and Kevin Parker, New York Daily News

Latrice Walker is a Brooklyn assemblywoman and Kevin Parker is a Brooklyn state senator. They authored this article, which originally published March 23, 2017 on the New York Daily News.

Dear New York Times Real Estate Section,

Your front-page article this weekend, with the headline “Finding Washington Heights” and gauzy illustration of a beatific white woman framed in a sea of darker faces, went too far.

Why bother to write to you, Real Estate Section? The obvious answer is that the headline is offensive; Washington Heights is a long-standing, vibrant community with a concentration of working-class, Spanish-speaking New Yorkers that was not, in fact, first discovered by the woman in the illustration. The title and illustration makes the unspoken racial dynamic of the article clearly, painfully, and distressingly clear. These days, this is called the ‘columbusing‘ of long-established communities of color and immigrant neighborhoods. There was no discovery; people have been there for generations.

But here is the larger point, Real Estate Section: you are part of an important news organization that sees itself as “the paper of record”.  You have an obligation to be more than a glossy supplement for the real estate industry, pushing juicy articles designed to excite the market in whatever neighborhood the industry wants to make the next frontier of gentrification.

Any responsible article should include the context that many neighborhoods across New York City are reaching a crescendo of concern about the crisis of gentrification, displacement, and tenant harassment that people and neighborhoods experience when they are pushed out of their community against their wills to make way for people with more economic power and social capital.

Washington Heights is one of the neighborhoods at the epicenter of this crisis. Developers have driven up the price of residential real estate in that neighborhood by 96% in the past five years, while the incomes of current residents have gone up by only a fraction, and thousands of Washington Heights residents have been pushed out of their affordable apartments. The neighborhood has lost more than 5,600 rent regulated units since 2007, a devastating blow for a working class community in a city where affordable housing is vanishingly scarce.

This matters to our city. It matters because it is brutally unjust to the people who are displaced, and harassed out. It matters because the people being pushed out are too often from working-class, immigrant, and communities of color that are part of the economic and racial mix that we all value. It matters because in this day and age, cities have increasingly become the essential centers of economic opportunity, and when whole communities are pushed out to the margins and beyond, they are locked out of that opportunity and fall further behind.

But, Real Estate Section, instead of giving us the service of an article that acknowledges this social and political reality, you give us an article that is a colonialist travelogue with the first-person point of view of a privileged person touring around a neighborhood that she can appropriate merely by looking at it.

I know you say that you are just a real estate section, and your job is to show attractive things to people who can buy real estate, so of course your point of view skews to people who tend to be white and wealthy, and naturally you write for those who are able to afford an ethnically exotic “new” neighborhood that you show as ripe for exploitation.

What would an article titled “Finding Washington Heights” be if it were written from the point of view of a long-time resident in a rent-regulated apartment writing about her neighborhood?

You are a part of a great newspaper with significant influence. Dear Real Estate Section, you should be more than a vehicle for real estate sales. You can cover the real estate market like a real newspaper and not be an active agent for speculation, displacement, and gentrification.

Thank you for considering this advice, Real Estate Section.