Cuomo’s Rebranded 421-a Program: Bigger Tax Breaks for Luxury Apartments
Cuomo’s Rebranded 421-a Program:
Bigger Tax Breaks for Luxury Apartments
Governor Andrew Cuomo has proposed reviving the 421-a tax break for housing construction under the name the “Affordable New York Housing Program”—but he would make only a token increase in the number of affordable apartments developers receiving the subsidies must build. He would also let landlords keep the tax exemption for apartments they’ve taken out of rent stabilization.
The proposal, which would replace the 421-a program that expired in 2016, is included in the governor’s executive budget for fiscal 2018. As the state budget is supposed to be adopted by April 1, it will likely become law unless progressive legislators raise fierce objections and Assembly Speaker Carl Heastie draws a line in the sand.
Cuomo negotiated the deal with the Real Estate Board of New York, representing developers, and the Building and Construction Trades Council of Greater New York, representing workers. In return for significantly enhanced tax benefits, developers would be required to pay construction workers an average of $60 per hour, including benefits, below 96th Street in Manhattan, and $45 on the Queens and Brooklyn waterfront. Developers outside these areas, who generally use nonunion labor, could opt in to the more generous benefits by agreeing to the wage standards.
The original 421-a program was enacted in 1971 to stimulate housing construction: It exempted developers from having to pay full property taxes on newly constructed housing. Over the last 30 years, the state legislature and the City Council have added that developers in certain parts of the city, generally more affluent areas, must finance some apartments affordable to lower-income New Yorkers—usually 20 percent of what they build—in exchange for the subsidy. They also had to put the market-rate units under rent stabilization as long as they received the tax breaks, typically 25 years.
The program, which now costs the city $1.2 billion a year, has subsidized a huge number of luxury apartments and a trickle of below-market units. It subsidized One57, the luxury condo across the street from Carnegie Hall where a penthouse sold to a foreign investor for more than $100 million. A 2014 analysis by the Association for Neighborhood and Housing Development found that less than 9 percent of the 152,402 residential units produced via 421-a were “affordable”—with most of those renting for well over what most city households can afford.
Owners also defy the requirement that apartments receiving the subsidy be rent-stabilized. In October, a ProPublica investigation found that in almost two-thirds of the 6,400 buildings receiving property-tax abatements under 421-a, landlords have failed to register the apartments as rent-stabilized with the state housing agency, as they are required to do every year.
A number of features would make Cuomo’s revived version even more of a boondoggle.
* The tax forgiveness would be even more generous, offering some developers a full exemption from paying any real property tax for up to 35 years, rather than the old formula of gradually bringing them up to the full tax rate. The city Department of Housing Preservation and Development estimates this would increase the costs per affordable unit by 29 percent. According to an analysis by Tom Waters of the Community Service Society, the total cost would double, to $2.4 billion per year.
* The city wouldn’t get significantly more affordable apartments for all that money. The governor’s office estimates that the new benefit will result in “up to” 2,500 affordable apartments per year. It would increase the amount of “affordable” apartments required to be built in some neighborhoods from 20 percent to 25 or 30 percent, but it would not mandate that a greater number of those be affordable to people who can’t pay $2,650 a month for a two-bedroom apartment.
* Once again, those units would not be permanently affordable. They would go up to market rate when the subsidies expired, at most 40 years.
* For the first time, owners will be able to get rid of rent-stabilization restrictions while still receiving the subsidy. ProPublica found a section in Cuomo’s bill that allows landlords to deregulate vacant apartments if the rent is above the threshold of $2,700 a month. As the initial rents are usually higher than that, this means they could deregulate after the first tenant moves out. Under the old 421-a program, tenants were protected by rent stabilization even after the tax subsidy ended, so they still had the right to renew their leases, and rent increases were limited.
* There is one good provision in the bill: It would eliminate tax benefits for luxury condos. Only small condos in the outer boroughs would qualify. State Senators Marty Golden (R-Brooklyn) and Simcha Felder (D/R-Brooklyn) have proposed to make luxury condos eligible again, which both de Blasio and Cuomo have opposed.
* The bill also eliminates the city’s power to change the boundaries of where developers receiving the subsidies must include affordable apartments, as it did in 2006. The city would also no longer have the right to opt out of the 421a program.
The Senate Republicans will certainly support this package. They will also use the $2 billion appropriated in last year’s budget to build supportive housing as a hostage to try to ensure its passage. That money has been held up because Cuomo agreed to give legislative leaders veto power over how it would be spent.
“If this succeeds,” said Waters, “there will never be a lessening of this tax exemption, because it will be the state deciding how to spend the city’s money, and they can get to be friends with real estate without it costing them anything. There won’t be any effective political control over this enormous tax subsidy—ever.”