Albany ready for 421a showdown as budget deadline approaches

There’s no doubt that the 421a has fueled development – nearly 117,000 units built since 2010 have qualified for the abatement. But over the past two years, the vast majority of limited-income units have been priced for people earning well above the city’s median income.

Susan Watts/Office of the New York City Comptroller

Lawyers and members of the NYC Comptroller’s Office at a rally calling for an end to the 421a replacement.

Start with the consensus: New York City is in the midst of a years-long affordable housing crisis that has fueled mass homelessness and left hundreds of thousands of homes pay half of their income in rent. The city needs more apartments for low-income residents and wants developers to build them, but construction is expensive and rental income from affordable housing is limited compared to market prices and luxury properties.

So how does New York encourage the development of affordable housing without losing too much revenue? This is where it gets tricky, and where lawmakers and influential interest groups diverge as state budget negotiations enter a feverish home stretch.

The housing crisis has for decades given significant leverage to the real estate sector, allowing developers and building owners to obtain massive tax breaks in exchange for the creation of certain low-income apartments. But only a fraction of those units are being sold at levels the average New York household can afford, prompting criticism of the tax scheme, known as 421a, as a diverting giveaway. nearly $1.8 billion a year from the city, according to analysis by the controller’s office.

With 421a due to expire in June, state lawmakers must now decide which way to go.

The issue remains one of the biggest issues in Albany, as Governor Kathy Hochul and Senate and Assembly leaders work to craft a final state budget. According to a report by the furman center. But for the past two years, the vast majority of low-income units were priced for people earning six figures, well above the city’s median income.

Hochul acknowledged the lack of housing development for low-income people and proposed replacing 421a with a modified, albeit similar, tax abatement scheme known as 485w (like 421a, it is named after his location in the property tax code). The proposal has the support of Mayor Eric Adams, influential unions and the real estate industry. Progressive policymakers and tenant groups, meanwhile, want to remove any catch-all tax relief and institute incentives to create truly affordable housing.

It seems unlikely that the revised program will make it into the budget, due April 1, but three lawmakers who spoke to City Limits on Thursday morning said anything was possible as haggling intensifies ahead of the budget deadline, especially with the bail law debates. internal oxygen and the dominant public discourse.

“Nothing is final yet,” said a lawmaker involved in the negotiations.

What’s at stake

The 421-a tax exemption has been around in one form or another since 1971, when the cash-strapped city was eager to grease the wheels of new development in all five boroughs. In response, the state created a program to remove most of the property tax burden for developers of new residential buildings by allowing them to pay the pre-development rate. The scheme was overhauled in 2017 after it expired months earlier, with the new version touted as a way to encourage the development of needed affordable housing.

It didn’t really happen. According to a report published Tuesday by the Community Service Society of New York (CSS is a funder of City Limits).

The reason is built into the existing schema. The current version of 421a gives developers three main affordability options, but nearly all choose the option to reserve 30% of units for households earning 130% of the area median income (AMI). That’s nearly $109,000 for an individual and nearly $140,000 for a family of three in New York City — not rich, but not exactly low-income. The tax allowances last up to 30 years.

CSS compiled data from Department of Housing Preservation and Development statistics and found that developers built around 8,500 apartments with 421 tax abatements between 2017 and 2021. Only 2,564 units were subject to conditions of income, and about three-quarters of them were reserved for households. earning 130 percent of the AMI. Only 8% of affordable apartments (and 3% of total 421a units) were offered to people earning 30-50% of the AMI. Less than 1% went to households earning less than 30%, CSS found.

The report also found that most of these new 421a apartments were concentrated in areas of the city experiencing gentrification, such as Prospect Lefferts Gardens, Bedford-Stuyvesant and Bushwick. Only a fraction was affordable to the median renter in these areas, the authors noted.

The current 421a program has resulted in “affordable housing” which, in many neighborhoods, is both too expensive for most neighborhood residents and more expensive than market-priced rental housing nearby, writes the report’s authors, Sam Stein and Debipriya Chatterjee.

They urged the state to revise the tax code and create tailored incentives for producing affordable units rather than a one-size-fits-all approach.

Adi Talwar

A new way, or more of the same?

In his January State of the State address and policy book, Hochul acknowledged 421a’s failure to create deeply affordable housing.

Enter 485w.

Hochul says his proposal, included in his $216 billion executive budget planwould support more low-income housing by eliminating the 130% AMI option.

The 485w program would instead force developers of buildings over 30 units to price a quarter of their apartments for people earning less than 80% of the AMI with mandatory levels for low-income tenants. At least 10% must go to households earning 40% of the AMI (about $43,000 for a family of three), at least 10% at 60% of the AMI ($64,440 for a family of three ) and at least 5% to 80% of the AMI (about $86,000 for a family of three).

The program would also require developers of buildings with less than 30 units to reserve 20% of their apartments for people earning no more than 90% of the AMI ($96,600 for a family of three). This is still far more than low-income households can afford, critics of the proposal point out.

Still, the plan has many influential supporters. During testimony in February before the Senate Finance Committee, Mayor Adams said 485w would be a “crucially important tool” in meeting the city’s housing needs. The Real Estate Board of New York (REBNY) used similar language, calling the revised plan “an important tool to continuously produce rental housing at more affordable levels.”

Many Democrats may not care what Adams and REBNY think of the measure, but they will listen to organized labor. And influential unions have publicly lined up behind the 485w plan. The heads of 32BJ and the building and construction trades, along with Adams, co-wrote an op-ed supporting the tax relief in the Daily News Sunday.

The existing program is flawed but has “resulted in thousands of union jobs to support the family and delivered a middle-class ticket to New York families,” they wrote. The proposed change would maintain wage standards for unionized workers and while creating more affordable housing, they added.

This position makes it more difficult for Democrats who see unions as a pillar of their base. “I think everyone is happy that the workers are happy, but there is no real improvement in real affordable housing,” said a state lawmaker who asked to remain anonymous during the discussions on internal negotiations.

Legislators take advantage of the opaque nature of the budget – a positive or negative vote on a massive package of spending and legislation. This is also what makes the budget process so frustrating: elected officials can avoid taking a public position on crucial issues.

Nonetheless, many Democrats, especially progressives, criticized the proposal in conference this week. Several have publicly attacked the 485w plan and demanded that it be removed from the spending plan.

“We don’t need 485w, a fraudulent tax giveaway for the wealthy masquerading as an affordable housing program,” said Queens Assemblyman Zohran Mamdani. tweeted Monday.

Meanwhile, some affordable housing developers have also spoken out against the replacement.

“Governor Hochul’s proposal…is a sugar-coated version of 421a that is ultimately still a massive giveaway for luxury developers – not an affordable housing program,” wrote Will Depoo of the Association for Neighborhood and Affordable Housing Development. . in a Sunday blog post.

Removing the budget proposal would set up a legislative showdown for later this spring, meaning it would remain a key issue in the final months of the legislative session, along with other housing proposals. Advocates hope to enact new eviction protections and fund a new housing allowance that may or may not feature in the budget plan.

Removing 485w from the budget could also lead to a more nuanced approach to incentives through a long-desired overhaul of the tax code. Although this is probably a pipe dream.

Until then, the Citizens Budget Commission wrote in a report On March 15, “the need for incitement will remain.”

State lawmakers will soon determine what that incentive looks like.

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