Community Service Society: scrap 421-a tax break, replace it with programs with benefits in direct proportion to affordable housing provided

Well, the Community Service Society's Samuel Stein & Debipriya Chatterjee have produced with a forceful critique of the controversial tax break that developers like, 421-a at 50: Rising Cost, Diminishing Returns. (Also at bottom.)

From the summary:

This report argues that the program is an expensive anachronism – a tremendously costly legacy of a very different time for New York City’s housing and real estate markets – which the legislature should leave behind. We trace the program’s history and current design in order to explain why three previous rounds of reform have failed to deliver either shrinking costs or meaningful affordability. Ultimately, we argue that the fatal flaw is in the program’s initial inception: it was designed in 1971 for a real estate market that looks nothing like the city today. No matter how many amendments the legislature makes to the program, it remains primarily a tax break for the wealthy, not a driver of housing affordability.

The big picture

The report states:

In Fiscal Year 2021, 421-a reached a record cost of $1.7 billion in foregone tax revenue to New York City. Over the past three decades, the price of the program has increased by 402 percent (adjusted for inflation) and has cost the city more than $22.2 billion.

The 421-a program cost New York City more than any other single housing expenditure, including city or federal spending on public housing, tenant vouchers or new subsidized housing development.

The increase in the cost of 421-a has both contributed to and resulted from the increased cost of housing in the city.

Over the last two decades, there has been a shift in the number of units produced with the 421-a exemption from Manhattan to Brooklyn, but units in Manhattan still constitute the bulk of the program’s cost because Manhattan developments remain the most expensive.

The historical conditions that may have justified 421-a in 1971 (stagnating economy, diminishing development) no longer apply today, and several attempts to correct the program and add new requirements to it have failed to either shrink the cost of the program or produce a meaningful amount of truly affordable housing. The program’s price has exploded over time despite previous reforms to the program aimed at tightening eligibility.

What next?

The authors propose:

• END 421-A, rather than let Gov. Kathy Hochul replace it with a program that delivers somewhat more affordability.
• REPLACE it with future programs that should provide benefits only commensurate with the affordable housing they produce.
• AUDIT RECIPIENTS & PROTECT TENANTS regarding current 421-a buildings

Policy details

While from 1991 to 1997, Brooklyn had around 11% of the units developed with 421-a exemption, but that share nearly doubled from 1997 to 2001 and has grown since, so in 2021, nearly 40% of units were located in Brooklyn. That's gentrification.

The authors note that the 2017 revison into Affordable New York "took several steps backward," as five of seven "options allow for 'affordable housing' targeted to the richest quarter of New Yorkers—those making 130% of the Area Median Income." That's the last two--and next two--Atlantic Yards/Pacific Park buildings.

As the authors point out, the target audience is far less likely to be rent burdened than lower- income New Yorkers.

Does the benefit trigger some construction that wouldn't otherwise be built? The authors are skeptical, suggesting "this mostly applies to the prospect of adding new and expensive housing in neighborhoods where local incomes cannot support high-rent units. In such neighborhoods, a program that produces housing which would be affordable to local residents would be more appropriate than 421-a."