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Looming: 421-a reform and thousands of affordable units

Housing advocates in New York for months have been arguing for reform of the city's 421-a tax break, which subsidizes market-rate developments outside of an "exclusion zone" (roughly, 14th-96th streets) in Manhattan--and could create tens of thousands more affordable units.

In the "exclusion zone," developers must fund affordable housing in exchange for the tax breaks, but the market remains quite healthy; a study issued earlier this year calculated that $320 million in subsidies was unnecessary.

And in recent rezonings, such as for the Greenpoint-Williamsburg waterfront, the City Council has required affordable housing in exchange for the right to build somewhat larger buildings.

(I've dubbed the Atlantic Yards project a privately-negotiated zoning bonus, because the affordable housing deal Forest City Ratner signed with ACORN has been used to argue for the project's scale, which is a political rather than a regulatory issue. Atlantic Yards is already on track for the subsidies.)

421-a reform coming

Now, reform of the 421-a program is looming. Yesterday elected officials and advocates held a press conference arguing that 421-a subsidizes gentrification.

The New York Observer quoted East Harlem council member Melissa Mark Viverito: "We are taking tax dollars from working families in East Harlem and using that money to subsidize the construction of luxury condominiums across the street from them selling for over $1 million. Essentially, we are asking people from El Barrio to pay to price themselves out of their own community."

As Crain's New York Business reported, they asked that 30% of the units created by the tax break be affordable.

According to the Daily News, Assemblyman Vito Lopez (D-Brooklyn), who chairs the committee that would revise or extend the law by the end of 2007, the Williamsburg rezoning worked. "The real estate developers didn't run; they kept building," Lopez said. "It just cut into their profits a little bit."

Devil in the details

At issue is exactly how to revise the program, which was launched in 1971 to spur construction in a moribund city. The New York Sun reported, program critics want to make sure that all 421-a tax breaks require affordable housing--and that developers not be able to fulfill their obligation by building the affordable units in low-cost neighborhoods (as in the Bronx) but in the same area where they build the market-rate units.

That's not what a mayoral task force is thinking, however, and those recommendations, which are due shortly, are expected to be influential--and fuel for a tussle with the City Council.

The task force, according to a source familiar with its work, is expected to extend the exclusion zone only to certain neighborhoods--larger parts of Manhattan, waterfront blocks in Brooklyn and Queens, parts of Downtown Brooklyn and DUMBO (both sites of furious market-rate construction), and perhaps even along the Flatbush Avenue corridor (which would bump up against the Atlantic Yards project).

The administration is, however, expected to propose eliminating the certificate program, which allows developers of housing in Manhattan to fulfill their obligation by funding affordable housing in cheaper neighborhoods.

Manhattan is key

Why isn't their more momentum to reform the law? "The market now assumes the program as it is currently," the source said. "It will felt by developers as a takeaway because they currently get a preposterously rich benefit. So we'll see as it goes through City Council."

Even though the 421-a program is glaring in Brooklyn, given the market-rate housing it's funding in neighborhoods in and around downtown, the vast majority of the subsidies go to Manhattan. So the extension of the zone in Manhattan would have a significant effect as a start, since if the tax revenue went to a trust fund, it could be distributed around the city.

Still, advocates in City Council are likely to point to the need to balance development in their neighborhoods. For example, City Council Member Letitia James, who represents Prospect Heights and Fort Greene, has introduced a bill to eliminate the exemption in her the 35th District.

Misused certificates

Part of the problem is how the certificate program works. As the New York Observer recently reported:
Outer-borough builders earn four or five certificates for each unit of affordable housing they produce, and then sell the paper for $12,000 to $20,000 each to Manhattan developers to qualify for 10-year tax abatements on market-rate condos and rentals. At a hearing in June, Jon Furlong, an advocacy associate at Habitat for Humanity, testified that a building at Trump Place on the West Side would receive $12 million in tax breaks for paying $2 million in certificates.

The article noted that, with the Greenpoint-Williamsburg rezoning, Lopez persuaded Housing Preservations & Development Commissioner Shaun Donovan to eliminate the certificate option, thereby requiring that the affordable housing be located on the same very expensive waterfront property on which the luxury condos would go.

More units coming

The bottom line, according to the Observer:
Mayor Bloomberg is counting on $200 million in revenue from the reforms to meet his goal of creating or maintaining 165,000 affordable-housing apartments citywide by 2013.

In the best-case scenario, Atlantic Yards would include 2250 affordable units by 2016. So those supporting the Atlantic Yards project because of the affordable housing aspects should keep an eye on the larger picture.

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