Wednesday, June 08, 2011

Pratt Center on 421-a renewal plans, which extend subsidies without affordability: A Luxury Housing Subsidy New Yorkers Can't Afford

According to a new issue brief (embedded below) by the Pratt Center for Community Development, the 421-a tax exemption to support new housing, cost New York City nearly $755 million last year in foregone taxes, or two-and-a-half times the level of property taxes forgiven under the program just five years earlier.

Now, the state legislature is poised to renew it, part of negotiations on rent regulation, the Pratt Center notes that it has produced only 5700 units of affordable housing over some 25 years.

What news outlets have picked up this news? Just City Limits, as far as I can tell.

The failure of reform legislation

Brooklyn readers should note the failure of reform legislation, announced just about the time that Atlantic Yards was first approved.

(Red dots show projects that have been completed and are currently receiving a 421-a abatement; black dots represent sites for future development that are exempt from the affordable housing obligation. Note several sites in Prospect Heights and in other neighborhoods reasonably close to the Atlantic Yards site.)

The report states:
Four years ago, the City Council and state legislature both sought to strengthen affordable housing production under 421-a by expanding the “exclusion zone”—so-called because projects in this area do not qualify for the as-of-right benefit but must instead contribute affordable housing in order to receive a tax break. The zone now includes areas in all five boroughs where developers must include affordable housing in tax-abated development projects, generally in neighborhoods where new market-rate housing is particularly expensive (see map). The administration also committed to placing $400 million into a new “421-a affordable housing fund” to be used for development in the city’s highest-poverty areas; combining Battery Park City revenues and city capital funds, it replaces an inefficient system under which affordable housing developers sold certificates to market-rate developers who claimed the abatement. The City capped benefits, so that owners of ultra-luxury apartments would no longer claim breaks worth tens of thousands of dollars annually. Finally, the revised law determined that all projects receiving benefits in the exclusion zone would have to provide their affordable housing on site.

“The changes have modernized the tax incentive to better target it towards the creation of housing for low- and middle-income families and will generate hundreds of millions of dollars for affordable housing,” the Bloomberg administration announced in the 2009 update of its New Housing Marketplace Plan. “The reforms are designed to create the maximum amount of affordable housing for the city while also ensuring that construction of new housing will continue at a strong pace.”

Unfortunately, projects built at the end of the boom were not covered by the expansion of the exclusion zone, and produced little or no affordable housing. In renewing the abatement in 2007, the state legislature determined that projects in the expanded exclusion zone had until June 30, 2008, to begin construction under the old law, under which they were granted the 421-a benefit as of right. This has enabled developers to build thousands of market-rate housing units in the expanded exclusion areas, and reap the tax benefit, without including affordable housing. These projects were also granted an exemption from a cap the City had sought to impose in an effort to rein in subsidies for ultra-luxury housing; the cap would have limited the exemption to about $9,000 per unit annually.

A Pratt Center analysis has found that in the two years leading up to that 2008 deadline, developers initiated construction on 271 residential sites eligible for 421-a, totaling more than 7,800 permitted units, in the new exclusion zone areas. Of those, 123 sites are now built and occupied, totaling 2,219 units of housing.... The remaining 148 sites are vacant, according to the Department of City Planning Pluto database 2010. Under the legislative measures introduced this year in Albany to renew 421-a, all will continue to remain eligible for 421-a benefits without an affordable housing obligation, under a new provision allowing for an “extended construction
period” of three years, in addition to the three years already allowed. Developers have established tax abatement eligibility for 5,642 units for these permitted sites, worth $30.9 million a year—again, with zero commitments for affordable housing production.
Pratt Center 421-a analysis, June 2011

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