New York City’s mayor suggested for the fist time over the weekend that state lawmakers should cancel a longstanding tax break for real estate developers if they can’t agree to significant reforms to the subsidies that would encourage more affordable housing construction.
“If Albany will not give us the changes we need, if Albany will not strengthen rent regulations, if Albany will not pass a mansion tax, if Albany will not protect us,” Mayor Bill de Blasio (D) said Sunday at a Baptist church in Manhattan, “then here’s what I think about any tax breaks for condominiums, luxury condominiums, any tax breaks for developers who are not going to create affordable housing — I say end those tax breaks once and for all.”
The tax break, named 421-a for the section of the state code that contains it, is at the center of de Blasio’s grand plan to build or preserve 200,000 units of affordable housing city-wide. The law gives developers an almost perpetual tax break for new construction. 421-a cost New York state over a billion dollars in 2014, and must be renewed by lawmakers this year because of a sunset provision written into the law. The mayor has sought significant reforms to the law for months, but Sunday was the first time he entertained the idea of canceling the tax breaks completely, according to Capital New York.
421-a began in the 1970s as a way to lure developers into Manhattan at a time when the city’s central borough was failing to attract construction at market rates. Initially, the tax breaks ran for up to 10 years and developers had no obligation to include affordable housing units in their projects. In 1985, the tax break became contingent on building affordable units for a significant portion of the island. But anywhere else in New York City beyond that specified stretch of Manhattan, developers could cash in the tax break without making any effort to cater their designs to the city’s social needs. It wasn’t until 2006 that the initial map for 421-a tax breaks expanded to require below-market-rate rentals in new buildings outside Manhattan, and even the current map leaves large swathes of the five boroughs open to purely luxury construction subsidized by state taxpayers.
De Blasio wants to ditch the map and apply the affordable housing requirement to all 421-a tax breaks anywhere in New York City. He also wants to raise the proportion of units in a building that must be affordable to qualify for the credits. To balance out those stiffer terms for developers, the mayor’s plan would extend the maximum lifespan of the tax credit so that builders could claim it for up to 35 years running, rather than the current limit of 25 years.
As recently as Friday, the mayor’s public statements on the program had suggested a compromise was at hand in the state capital. With New York’s rent control law also set to expire this summer, the climate is fecund for deal-making between lawmakers sympathetic to tenant concerns and those inclined to look out for developers’ best interests first. In a radio interview Friday, de Blasio indicated he has been in regular contact with Gov. Andrew Cuomo (D) to iron out the final details of a package that would renew and reform both the rent control law and 421-a tax abatements.
Without strengthening the connection between the tax subsidies and housing construction that is responsive to the city’s overall needs, New York risks exacerbating rental housing market problems that are common to most major cities in the country. Four out of every five new rental units built from 2012 to 2014 was designed for a luxury tenant, according to a Wall Street Journal-commissioned analysis of 54 separate real estate markets in America. Developers’ myopic focus on the very top end of the market has added pressure to the vice that renters nationwide found themselves in after the Great Recession, when millions of former homeowners flooded the rental market and drove prices up across the board at the same time that middle- and low-income workers’ incomes stagnated or fell. More than six years on from the crisis, rents continue to trend up at an even faster pace than home prices.
In New York, where everything is more expensive, those rental market pressures are further heightened. One anecdote from earlier this year illustrates the magnitude of the challenge that de Blasio’s plan for 200,000 affordable housing units faces. When a condo building infamous for designing a separate “poor door” entrance for affordable-housing tenants finally opened this spring, it had 55 below-market rental units to offer. Over 88,000 people applied to live in them. All told, the number of New Yorkers who have applied for affordable housing lotteries in the city in the first half of the year is roughly equivalent to the entire population of Wyoming.