Monday, March 16, 2015

REBNY: 421-a reform threatens 5,500 affordable units, including Atlantic Yards/Pacific Park (but evidence/likelihood?)

The Real Estate Board of New York (REBNY), pushing back against calls to kill or reform the 421-a tax abatement, has issued a report arguing that several projects, including Atlantic Yards/Pacific Park, would not go forward unless the tax break is kept. (As I explain below, their explanation is rather thin.)

As reported by Crain's New York, in Developers fire back against calls to kill tax break, REBNY asserts "Nearly 5,500 affordable apartments in just nine projects would never have been planned if not for" 421-a, which expires in June 15 but likely will be reformed. It lowers property taxes for 25 years in most cases, 15 years in some.

"There is little doubt that the 421-a regulatory regime needs to be revised," Jesse Keenan, research director at Columbia University's Center for Urban Real Estate, told Crain's, referring to charges that it subsidizes luxury housing without any requirement for affordability. But he and others don't want to lose it.

There is a logic to the tax break, since it is part of the city's crazy-quilt pattern, which begs for reform. (Here's City & State coverage of the problem.) As REBNY states in the report (below):
According to the Independent Budget Office (IBO) Report on Real Property Taxes, residential rental buildings pay property taxes at a rate five times greater than coop and condo buildings. Given the enormous and inequitable tax burden on multi-family residential rental property, we will continue to need a robust, as-of-right tax exemption program to offset for a period of time the crushing burden of property taxes to build new housing and to preserve existing rental housing
One question, however, is who benefits. As Crain's notes, 421-a has fueled an increase in the price of land, and different parties debate whether a reform or expiration would lower land costs or simply stall construction until the market adjusts.

Crain's 2/11/15 quoted a broker saying three-quarters of the bidders dropped out of an auction because they realized they couldn't start construction to meet the 421-a deadline, which raised risks too high.

From REBNY: Pacific Park wouldn't be built?

The REBNY report, it says, "is not intended as a comprehensive look at all of the projects that are relying on the renewal of 421-a, [but] begins to tally some of the market-rate and affordable rental units that would likely not be created if the 421-a program were not renewed this June... These preliminary findings indicate that over 5,484 affordable rental units would likely never be built, along with the 13,801 market rate rental units associated with the same projects."

The report omits units already in construction, which have secured the 421-a partial tax exemption. That's why the report states that 1,468 affordable units at Atlantic Yards/Pacific Park are in jeopardy rather than the full 2,250 subsidized unit, because three towers with some 782 subsidized units--including B3 (aka 30 Sixth Avenue)--should be under construction by June.

It's not clear why the report claims that only 3,720 additional units in the project will be built using 421-a. Another way to see it is that the entire project will benefit from 421-a, since the eligibility standards were stretched to allow affordability calculations based on the entire project.

More importantly, we're supposed to take it on faith that the project wouldn't work without 421-a *and* that any reform would kill this project. Rather, I suspect that REBNY is using projects like these to argue for the most advantageous retention of the tax break.

If for some reason 421-a reform does affect Atlantic Yards/Pacific Park, that would set up a tension with the 2025 deadline to build the affordable housing.

The developers likely would be able to avoid fines for delay by claiming a subsidy unavailability. But before that we'd likely see a united front among developers, elected officials, and housing activists--at least those associated with this project--to retain the tax break.

The effect over time

The REBNY report claims:
In order to reach its goal of constructing 80,000 new affordable housing units in ten years, an average of 8,000 units per year must be built. The 5,484 affordable units included in this analysis represent over 68% of the units that would need to be produced in a given year. Even assuming these units will be constructed over a few years, this loss would be a significant hit to the City’s housing program, especially since the projects included in this report have already gone through various time-consuming approvals processes. 
(Emphasis added)

Even assuming these units will be constructed over a few years. Yes, how about ten years in the case of Atlantic Yards/Pacific Park.

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