DCP: expiration of 421-a tax break drove spike in building permits; June 15, 2026 deadline for completion is not that far off. Whither Gov. Hochul on housing?

According to the NYC Department of City Planning's recent information brief, New Housing Permits in the First Half of 2022 (also at bottom), the first half of 2022 saw a significant spike in building permits, as the Department of Buildings (DOB) issued permits for about 58,600 homes.

That's more than double any previous full year since 2015 (60,500 permits), which, not coincidentally, also was the last period before the expiration of the 421-a state tax break, later renewed and revised as Affordable New York.

This year, the tax break expired June 15, 2022. DCP noted that the spurt likely related to developer uncertainty about whether the state legislature and governor will agree--as they were not able to do--on a renewal.

In the interim, it's likely that far fewer permits will be filed--and that they'll not be for rentals, like the most recent Atlantic Yards/Pacific Park buildings, with 30% middle-income affordable housing.

What's next

As Greg David of The City, who first reported on the DCP statements, wrote 11/10/22:

Replacing the tax break is one of four key housing priorities on City Hall’s wish list for Albany in 2023, chief housing officer Jessica Katz said at a Citizens Budget Commission event last month. Real estate groups like the Real Estate Board of New York will also be pressing for enactment, arguing that burdensome property taxes and high costs of construction make building housing uneconomical.

Now that Gov. Kathy Hochul has been elected, in a narrow race that mostly ignored housing policy, the real-estate industry is optimistic she will pursue their priorities, according to Crain's. According to the Real Deal, those priorities include:

She is expected, however, to revive proposals to ease office-to-residential conversions and to allow the construction of accessory dwelling units in areas zoned for single-family homes. She may also pitch a measure that would lift the cap on residential floor-area-ratio in the city, which she previously proposed.

Quick distillation

Is the tax break a boondoggle, or is there justification--or both? 

Without reform of our tax system, which has been proposed but never enacted, real-estate players will argue that 421-a, or some variant (remember, they were willing to accept Hochul's revision, which offered significantly more affordability) is necessary.

On the other hand, the public has not gotten much bang for its very significant buck.

Four years to build

Those who filed have to finish the building within four years, by June 15, 2026.

So that's a deadline for the B5 tower (700 Atlantic Avenue), the first slated to be built over the railyard, which though developer Greenland Forest City Partners, dominated by Greenland USA, believes would qualify. (That's not clear.)

"Typically, 80 to 90 percent of permitted projects are completed within four years," DCP states. "However, limits on construction sector capacity and today’s high interest rates will likely reduce the share of recently permitted projects that can complete within this timeframe."

In other words, there are multiple factors. In the case of Atlantic Yards/Pacific Park, another factor may be the ability of GFCP to find a partner to share the risk; after all, Greenland Holding Corp., the Shanghai-based parent of Greenland USA, has seen its credit rating and stock price drop.