Property Tax Post: Is NYC’s 421-a Program Necessary for Affordable Housing Development, or Merely a Give-Away to Luxury Apartment Owners?

The expiration of New York City’s largest housing program is looming on June 15. As that date nears, the long-running debate over the utility program is heating up, with tenants on one side clamoring to abolish it, and real estate developers warning that without it, construction projects will become too expensive to undertake.

The 421-a program was created in 1971 to address the collapse of private residential housing by providing a tax abatement to encourage real estate construction.

Since the 1980s, however, 421-a has come to be seen more as an affordable housing program when state legislators tweaked the program to require, in certain parts of Manhattan, that developers to subsidize 20 percent of the units for low- and moderate-income housing in order to receive the abasement.  In 2006 and 2007, the 20 percent affordable housing requirement was expanded to the remainder of Manhattan and parts of outer boroughs.

421-a was notably used recently, to build One57, which is one of NYC’s most expensive residential buildings, and houses a unit that recently sold for $100 million.

Other parts of the city, however, receive as-of-right exemptions, where builders receive the 421-a exemption without the affordable housing requirement. The Pratt Center for Community Development, for example, has highlighted the huge number of purely market-rate condo buildings that receive millions in property tax breaks.

The program cost state coffers approximately $1.1 billion in 2013, according to NYU’s Furman Center, providing abatements to approximately 150,000 apartments, up from a cost of $130 million in 2002.

Tenant groups hope to see 421-a replaced by a more progressive, and targeted program that strictly subsidized low income housing, or provides a direct payment to help the disadvantaged afford homes.

Real estate developers argue that 421-a is necessary for residential development. For example, David Kramer, President of the Hudson Companies, argued in a New York Daily News op-ed that given the high property taxes and extremely high cost of land, “the 421-a program is critical to constructing most multi-family homes.”

Mark Willis, Executive Director of the Furman Center, however, argues that lowering land value may actually have a detrimental effect on the market. The elimination of 421-a could possibly reduce land values and cause landowners to take their property off the market for developers

As the expiration looms, the de Blasio Administration is caught in the middle of the financially powerful real estate industry, and tenant groups that are in favor of affordable housing, which is one of his biggest support bases. One reform the de Blasio Administration is considering is to expand the exclusion zones, which would expand the affordable housing requirement for receiving the abatement to more areas of the city.

Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: What has become the policy goal of 421-a, how is 421-a, in its current form, the best way to achieve that goal?

Sign up for a free trial of the Bloomberg BNA Premier State Tax Library and see a detailed discussion on state property taxes.