Nearly 5,500 affordable apartments in just nine projects would never have been planned if not for a four-decade-old TAXbreak due to end in three months, according to a report by the Real Estate Board of New York.
The 421a abatement, which lowers property TAXES on new apartments for up to 25 years, expires June 15. The REBNY report is intended to counter critics who say 421a mainly subsidizes luxury apartments and should be left to die. Developers are rushing to lay foundations for projects across the city before they lose the benefit, which is already going to 71,950 dwellings.
REBNY analyzed a sampling of nine large residential projects, including the Pacific Park (formerly Atlantic Yards) and Domino Sugar developments in Brooklyn and Astoria Cove in Queens, at various stages of development. The group determined that the TAX break is responsible for 5,484 below-market-rate apartments and 13,801 market-rate units in those projects.
“The renewal of 421a is one critical element of the city’s plan to address our housing shortage,” said Steven Spinola, president of REBNY, in a statement. “Without 421a, our housing crisis will take an immediate turn for the worse.”
The 40-year-old program, which forgave $1.1 billion in city property TAXES in the year ending June 30, 2014, will likely be renewed but made less generous to builders. Even some supporters agree it needs to be revised to require projects in more of the city to include AFFORDABLE HOUSING in order to receive the TAX break. Mayor Bill de Blasio has yet to reveal his position on 421a, although his aides have praised it for producing affordable apartments in affluent neighborhoods.
“There is little doubt that the 421a regulatory regime needs to be revised to reflect greater efficiency standards in the production of mixed-income housing in mixed-income neighborhoods,” said Jesse Keenan, research director at Columbia University’s Center for Urban Real Estate. “However, an outright repeal of 421a will set back not just the affordable-housing industry, but those small infill developers that we are critically reliant upon for developing greater densities of AFFORDABLE HOUSING, which are contextually sensitive to neighborhoods and communities.”
In most of the city, the TAX break is granted to residential projects whether or not they have low-rent units. In other areas, known as the exclusion zone, a portion of the units must be affordable. A previous version of 421a had an exclusion zone only in a portion of Manhattan and allowed the affordable units to be built in other parts of the city.
The abatement program was created when elected officials were worried that developers would stop building apartments in the city. Since then, residential construction has become the most lucrative form of development, but land costs have risen to reflect those potential profits, which are enhanced by the tax break. Some developers claim that if 421a expires, land costs would not immediately fall, leading to a construction slowdown. Critics of 421a say the market would soon adjust to the loss of the tax break.