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"Gentrification subsidy": proposed 421-a reform seems tentative

A city task force has issued recommendations to modify the 421-a tax break in order to generate at least $200 million for affordable housing. The question, however, is whether the changes endorsed by Mayor Mike Bloomberg go far enough, since the tax break would still support luxury construction in neighborhoods like Park Slope and Fort Greene and Prospect Heights without requiring affordable housing.

A study issued earlier this year by calculated that $320 million in subsidies was unnecessary.

Currently, developers who get tax breaks in the 421-a exclusion zone--Manhattan from 14th Street to 96th Street and the Greenpoint-Williamsburg waterfront--must include at least 20 percent affordable housing. The program would expand to parts of Harlem, Lower Manhattan, DUMBO, Brooklyn Heights, and parts of the Brooklyn/Queens waterfront.

In other words, there would be no requirement to build affordable housing on the non-railyard blocks of the proposed Atlantic Yards site. Note that the alternative bid for the MTA's Vanderbilt Yard, from the Extell Development Co., proposed about 30 percent affordable housing, slightly less than the percentage now proposed in the AY project.

I've called AY an example of a privately negotiated affordable housing bonus, because the deal negotiated by developer Forest City Ratner and the community group ACORN is cited as justification for building an out of scale project.

Similarly, should Forest City Ratner proceed with plans to build three towers at the Atlantic Center mall, it would not have to include affordable housing.

Criticism from advocates

Brad Lander, director of the Pratt Center for Community Development and a task force member, told told the Times Oct. 11:
“Unless the exclusion zone is significantly expanded beyond what’s proposed,” he said, “I think this reform will not be anywhere near sufficient. The proposed expansion would still provide extensive tax breaks for million-dollar condos from Harlem to Park Slope, from Forest Hills to Riverdale, with no affordability requirements. It would remain an expensive gentrification subsidy.”

Julie Miles, executive director of the Housing Here and Now coalition said, according to the New York Observer, that the task force didn't go far enough but simply tweaked the program. Housing advocates think there should be no tax breaks without the requirement of affordable housing. Brooklyn Assemblyman Vito Lopez, according to the Brooklyn Downtown Star, has introduced a bill that would require any recipient of the tax break to set aside 30 percent of the units as affordable.

In an editorial Oct. 15 headlined Ending a Housing Giveaway, the Times offered a gentle criticism:
The plan, which the mayor endorsed, could and should be bolder, but it’s a good starting point for rethinking the program, known as 421-a.

The 421-a tax break dates back to 1971, when the city needed to jump-start housing construction. It's helped build more than 110,000 apartments. By now, however, everyone agrees that reform is overdue.

Some prices going down?

The New York Observer's coverage of the task force conference call quoted city housing commissioner Shaun Donovan as saying that condo prices "would potentially go down to some degree" in neighborhoods like Brooklyn Heights and DUMBO, where the tax abatements have inflated the value of the apartments. How much? Perhaps $20,000 to $105,000.

WNYC discussion

The Oct. 17 Brian Lehrer show Tuesday featured a discussion of housing among Steven Spinola, president, Real Estate Board of New York, Bernie Carr, executive director of the New York State Association for Affordable Housing, and Lander.

Carr pointed out that the city is doing more than the state, since most of the resources of the city's Housing Development Corporation go to affordable housing, while only, in 2004, only 22 percent of the state Housing Finance Agency’s bond proceeds went to affordable housing.

Lehrer asked Spinola: When we have these debates these days over requiring affordable housing creation when developers get approval for luxury development, the Atlantic Yards proposal in Brooklyn is a prime example of that, where there was a negotiation, and it was agreed they were going to propose X units of affordable housing to go along with Y units of luxury housing. Is that the basic template for the future, in your opinion, or is there something wrong with that?

(Note that Atlantic Yards is not a prime example, since it was negotiated privately rather than via a City Council rezoning.)

Spinola: There’s nothing wrong with providing an incentive to a developer in return for a commitment to build affordable housing. The question is: what is that incentive, and, second, what does it cost to build affordable housing? I’m not going to get into the details of Atlantic Yards, but there is an understanding that they’re going to build 20/30/50, 20 percent low-income, 30 percent affordable, and 50 percent luxury, but the City of New York is putting substantial dollars into the Atlantic Terminal project in order to make that happen.

How much does it cost?

Spinola continued: There’s no secret as to what it costs to build a unit of housing in the city of New York. Depending on the geographic area, land costs may vary, but it’s going to cost somewhere, probably between 450 to 700,000 dollars to build, in a mid-rise, high rise structure, a unit of housing. Well, if you can’t charge the rent to cover that, or charge the sale prices to cover that, well, the money has to come from somewhere, and that’s where the city has been aggressive… in providing the programs to do that. But let’s not pretend you can build market rate housing throughout the five boroughs of the city of New York, and that will subsidize affordable housing. The numbers don’t make sense.

Note that Deputy Mayor Dan Doctoroff recently said that moderate- and middle-income affordable units could be built for $54,000.

Carr: Atlantic Yards is a good example, my understanding is there going to be substantial government subsidy going into Atlantic Yards to build the affordable housing. And you guys can tell me if I’m wrong about that.

Spinola: You’re absolutely right.

What's affordable?

A caller asked: Everybody keeps talking about affordable housing. I’m 25, I’ve kind of been priced out of the city. I don’t exactly know what affordable housing means. I’m not low-income by any means. But I can’t seem to make enough money, and I know a lot of people who can’t. It’s either really high end luxury or splitting a one bedroom into two or three.

Carr: There isn’t a specific definition. There’s a whole range of different programs and subsidiy programs, all of them have different income and family size guidelines. Generally they’re all pegged to the Area Median Income, some are for people who make in the 30s and 40s. There are other programs, homeowner programs, for families, couples that may make 100,000 between them. The problem is there’s just so little. When one of our developers does a project with 100 apartments, all of which probably would be affordable to the caller, they’ll get 4-5000 applications. The affordable housing that we build--the demand so far exceeds the supply.

A caller called in to question the rent-stabilization laws. She observed: The few people I knew who have rent-stabilizied apts earn well over $100,000 a year and have vacation homes.

What's the solution?

Spinola: The answer happens to be more money. We should be looking for a dedicated fund, maybe we can tie it to certain taxes that are generated from luxury houisng… and turn to Bernie’s group and say, you’re the best people to build affordable housing, here’s the incentive, here’s the minimum you need, go and do it. But the answer is going to require more dollars, it needs to come from the state and city government. The federal government seems to have abandoned the issue of housing. It would be nice if they got back into the business.

Spinola said the Real Estate Board initially proposed the subsidy that requires 20 percent affordable housing in the "exclusion zone." He said it shouldn't be mandatory: That program is working. If you move that, say, let’s move it to Bensonhurst, let’s move to Park Slope, is the rent in the market rate unit enough to subsidize it?

Lander was skeptical: Instead, we’re giving developers a tax incentive just to build million dollar [apartments] in Park Slope… I think the city’s own analysis suggests that in an awful lot more neighborhoods it [an extension of the affordable housing requirement] would work. Let’s not give a tax break for luxury housing in gentrifying neighborhoods.

Home ownership

Lehrer asked about affordable home ownership programs.

Carr: There always have been affordable home ownership programs…. They’re a lot of what turned around the South Bronx and areas of Brooklyn. But the biggest program we’re having… we had this vast resource of vacant city land, we’re almost out of vacant city land, land prices are very high. It makes affordable home ownership a lot more difficult.

Spinola: That’s really what’s happening in the boroughs, what’s going on is you’re seeing condos or one or two family homes being built, they are market-rate driven and they are reasonably priced, and I think that’s going to be part of the city’s future.

Reasonably priced? It depends on your perspective. But that's why ACORN negotiated for 600 to 1000 affordable homeownership units as part of the Atlantic Yards project. When they might be delivered, and to what income brackets, remains unclear.

Task force recommendations

According to the mayoral press release, the task force recommendations include:
Expanding the 421-a geographic exclusion area (GEA). The current exclusion zone, the area where developments are required to provide affordable housing in exchange for 421-a tax benefits, includes Manhattan from 14th Street to 96th Street and the Greenpoint-Williamsburg waterfront in Brooklyn. The expanded area would include neighborhoods with substantially high real estate values and significant zoning density: parts of Harlem, Lower Manhattan, DUMBO, Brooklyn Heights, and segments of the Brooklyn/Queens waterfront.

Granting twenty-five years of benefits only to developments that provide affordable housing. The reformed 421-a would allow only developments that provide affordable housing the maximum duration of benefits. Other developments would receive the standard fifteen-year 421-a tax benefits.

Setting a limit on the total amount of 421-a tax benefits that any market rate unit may receive. Only the first $100,000 of an apartment's assessed value would receive the 421-a tax exemption, currently there is no limit. Projects providing affordable housing on-site would not be subject to the cap, helping to increase the incentives to provide affordable housing.

Reserving 421-a tax benefits for projects with a minimum of six units. This is an increase from the current minimum of three units. Properties with fewer units are already tax advantaged because they are assessed at lower rates than are larger developments.

Abolishing the existing negotiable certificates program. This program allows developers in the geographic exclusion area to receive 421-a benefits in return for purchasing certificates sold by developers of affordable housing outside the exclusion zone.

Eliminating the certificate program would require market-rate developers in the GEA to pay full taxes unless providing affordable housing on-site. The result would increase tax revenue -- to be used for a dedicated affordable housing fund that could be insulated from the appropriations process -- and to encourage development of on-site affordable housing within the GEA.

Reviewing methods and practices for assessing residential projects.


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