Even casual followers of the New York City real estate market could not help but note the ongoing battle over a 45-year old property tax exemption that has become a mainstay of major multi-family projects, called 421a. The controversial tax abatement program for new developments has been on the verge of demise if lawmakers in Albany and New York City cannot come up with a compromise for its renewal.
The 421a program gives developers a 10-year tax exemption for building a multi-unit residential project on vacant land, and was created in 1971 when City officials were concerned that residential construction was dropping as many residents were moving to the suburbs. That’s hardly a concern now, though, like many statutes, the original intent is no longer much relevant. Today, the program is seen as a way to bring much-needed affordable housing units to areas of the City in need, and is relied upon by developers to reach a green-light return.
The negotiations over the program’s extension have focused mainly on Governor Cuomo’s insistence that any agreement guarantee
union-level wages for construction works on 421a projects, and a proposal the Governor opposed to include condominiums under the 421a umbrella. Governor Cuomo was strongly opposed to including condos following public outrage over the 421a inclusion of luxury condos such as One57.
Meanwhile, Mayor Bill de Blasio’s 80,000-unit affordable housing goal was premised in part on requiring developers benefiting from the program to include a certain percentage
of affordable housing. Many have said that 421a is critical to the Mayor’s goal. Gary LaBarbera of the Building and Construction Industry Trades Council considered the program “dead” and said that a new and comprehensive program that provides affordable housing while also ensuring middle class wages and benefits to construction workers was required.
And on the opposite side of the table, Real Estate Board of New York President John Banks III said that his group “remain[s] committed to working with stakeholders” to establish an affordable housing program but that a prevailing wage requirement was untenable.” One source reported that a wage guarantee could mean a significant increase in construction costs. The City’s Independent Budget Office said the Mayor’s affordable housing goal might dramatically rise by $2.8 billion, finding a 13% average cost increase on new projects.
Of course, the poor relationship between the Governor and the Mayor can only complicate matters. As of this writing, the fate of the program remains unclear, and some major projects, such as Hallets Point, a 2.5 million square foot mixed-use development on the Queens waterfront that included 480 affordable units, have been halted based on the loss of 421a.