Pending compromise on "lucrative" 421-a tax break could mean more housing (and spur Pacific Park rental construction)
There's partial good news for the developers of Atlantic Yards/Pacific Park, who cited the uncertainty over the lapsed (since January) 421-a tax break as one reason--along with increased construction costs and a glut of expensive units--to delay the project timetable. Other developers have similarly said the lack of the tax break has stalled construction.
A pending deal on the 421-a tax break, which would create a 35-year tax exemption for rental apartments (as opposed to a past 25-year break) in exchange for a measure of below-market housing that lasts 40 years (5 years longer), was reached yesterday (!) by two private parties at the behest of Gov. Andrew Cuomo: the Real Estate Board of New York (REBNY) and the Building and Construction Trades Council of Greater New York. The governor sees both as allies.
Cuomo Strikes Deal to Revive Affordable Housing Program was the New York Times's headline, while Crain's New York Business more tartly pronounced Cuomo reaches a deal to revive lucrative real estate tax break. The current value of the tax abatements is more than $1 billion a year, and that would increase, according to the Times. But the percentage of subsidized units was left unspecified.
For most rental apartments, the current 20-year tax abatement comes in exchange for setting aside 20 percent of the units for poor and moderate-income families, according to the Times.
Note that Atlantic Yards/Pacific Park is something of a special case under 421-a, thanks to a 2007 compromise: all buildings get the tax break, as long as the overall project has a minimum percentage of affordable housing.
But if the current proposal means the 421-a plan no longer benefits condominiums, it's not clear if the Atlantic Yards/Pacific Park condos will gain the tax break.
The press release
REBNY's press release yesterday, strategically headlined Agreement Reached on Extension of 421-a Affordable Housing Program, explained:
The agreement calls for eligible buildings in Manhattan to pay on average an hourly wage of $60 (includes wages and benefits) for construction workers based on all hours worked. Eligible buildings in Brooklyn and Queens would pay on average an hourly wage of $45 (including wages and benefits) based on all hours worked.Other details:
The wage and benefits obligation applies to buildings with 300 rental units or more in Manhattan south of 96th Street and in Brooklyn and Queens Community Boards 1 and 2 within one mile (5,280 feet) of the nearest waterfront bulkhead. Buildings with 50 percent or more affordable units are excluded from the wage and benefits obligation. Projects that have started prior to the effective date of this agreement and meet the eligibility criteria may opt-in to the program.
The now suspended 421-a program would be amended citywide. Newly created rental units with income limitations would be kept in place for 40 years. Such buildings would receive a 100% property tax exemption benefit for 35 years.Note that the developers of Atlantic Yards/Pacific Park have entered into PLAs for the project.
Regarding enforcement and compliance of the wage and benefits obligation, developers will hire independent monitors to audit certified payrolls. The independent monitor would certify to the NYC Department of Housing Preservation and Development (HPD) within 120 days of the receipt of the final Certificate of Occupancy that the required average wages and benefits based on all hours worked have been paid.
Developers may enter into a Project Labor Agreement (PLA) at the developer’s discretion. If a developer chooses to enter into a PLA, then it may opt out of the 421-a wage agreement requirement in its entirety and still be eligible to fully participate in all other provisions of the 421-a program.
The Times cited the uncertainty, noting that this is the second time in three months Cuomo has been said to reach a deal, but that the deal would "unlock $2 billion for the governor’s own housing program," which needs legislative approval.
The 35-year tax abatement would be a full one, rather than Bill de Blasio's plan for 25 years (which eliminated the benefit for condos), followed by a ten-year phase-in. (For some units now, it's a 25 year plan, with 15 years of full tax breaks, then a ten-year phase in.)
Crain's cited "affordable housing advocates" as positive, but the one quoted was not from the tenant side. "We urge state officials to quickly take this next step, which would so greatly benefit families and our economy,” said Jolie Milstein, president of the New York State Association for Affordable Housing, an affordable housing trade group.
DNAinfo quoted the governor:
“While I would prefer even more affordability in the 421-a program, this agreement marks a major step forward for New Yorkers,” Cuomo said in a statement. “The agreement extends affordability for projects created with 421-a for an additional five years — bringing affordability for these units to 40 years. It also allows lower-income individuals to qualify as it lowers the percentage of area median income needed to apply.”The run-up
The Daily News earlier this week published Housing activists push to stop New York pols from reviving tax break for building developers:
“421-a is a major giveaway to luxury developers, and it’s not an effective affordable housing program” said Katie Goldstein, senior organizer at Tenants & Neighbors. “We’re happy that 421-a died, and we hope that it continues to stay dead.”That's not what the city administration thought:
Deputy Mayor Alicia Glen said late last month that while the administration’s affordable housing plan remains on track, the death of the program is taking its toll. “It’s nearly impossible to finance rental construction in New York City without a tax benefit, and our housing market simply leans too heavily on condo as it is,” she said at a New York Building Congress breakfast.ANHD warned 11/4/16:
The controversial 421a tax exemption for developers – now popularly known as the Trump Tax Break – is back in the news with reports of a possible pre-Election Day deal that would mortgage New York City’s budget for decades to come.At that point the tax break might have lasted 45 years:
With at least a $3 Billion City budget deficit by 2019 just around the corner, we cannot afford to mortgage our City’s fiscal future in exchange for a tax break for private developers to create primarily market-rate housing. It is unconscionable that the ability of New York City to pay for essential government services for its citizens for the next 45 years might be mortgaged away and handed over to REBNY as a pawn in the negotiations between the real estate lobby and the building trade unions to revive the 421a Trump Tax Break.ANHD noted that "a data update released by the NYU Furman Center titled, “NYC New Building Permits Recovered to 2014 Levels in the Third Quarter [of 2016], Despite 421a Suspension,” notes that not only have the number of new construction permits returned to normal levels, but the number of units per building has also returned to normal levels – growing from an average of 26 units per building in the Bronx in the 1stquarter of 2016 to 39 units per building in the 3rd quarter. This suggests that the surge in new rental developments without 421a is not limited to small-scale, one-off development sites."
A previous wage-subsidy plan, and some history
The Wall Street Journal reported 8/19/16, Cuomo Administration’s Proposed Tax Break for Developers Is Raising Questions that the pending deal then "includes a wage subsidy that has public policy experts, legislators and others questioning whether it makes sense for taxpayers to partially fund construction wages in the private sector and why the Cuomo administration has floated such an idea."
In an 8/13/16 op-ed for the Daily News, End the billion-dollar giveaway: How the 421-a tax break undermines affordable housing, Ismene Speliotis of the Mutual Housing Association of New York (the ACORN successor that has partnered on the Atlantic Yards/Pacific Park affordable housing), wrote:
According to the [Daily News] editorial, the end of 421-a has made development projects “unbankable and unbuildable.”
As a nonprofit affordable housing developer, I know firsthand that this is not the case, and that there are many more efficient ways we can be using city resources to promote affordable housing.
The 421-a tax abatement was created in the 1970s to bring economic investment back into the city and spur residential development at a time when New York was on the brink of fiscal collapse. But today, almost half a century later, the city is a very different place. An unchanged 421-a real estate tax abatement is a wasteful giveaway to developers, costing the city $1.2 billion a year to produce millions in benefits to private developers.
As anyone who lives in New York City knows, we are no longer on the brink of collapse; developers no longer need additional incentives to build multi-million-dollar condos. To make matters worse, beneficiaries of 421-a are some of the wealthiest developers in the country, including the infamous Glenwood, whose 10 Liberty Street apartments rent for over $6,000 a month.
Yet still developers continue to claim that 421-a is necessary for development. In reality, analysts at the Community Service Society suggest, 421-a drives a speculative land market — meaning that in its absence land prices would eventually adjust downward. Development would continue, albeit maybe not at its current frenetic and unhealthy pace.
She offered a staggering statistic: the 421-a tax break "has produced fewer than 1,275 affordable apartments per year — or one for every $833,000 in taxes unpaid."
Multifamily buildings are in the highest-taxed category of all New York City properties. Developers argue that it’s difficult to make the economics work for rental housing, in which profits are more long term than building condominiums, because the taxes are too high. Having union labor with an augmented wage becomes even more costly, especially if you’re assigning 20 percent of your units below the market average.