A return for the 421-a tax break? If so, likely no more towers with "affordable" units only at 130% of Area Median Income, aimed at six-figure earners.

The New York State budget is late--no surprise--and thus the details of housing legislation remain unclear. 

The resolution, notably a successor to the 421-a tax break that expired in June 2022, should help make future rental housing development more viable, and thus enter the equation for the future Atlantic Yards/Pacific Park towers. 

That doesn't resolve the future, given that rights to the six railyard sites are in foreclosure, and the cost of a platform and potential fines for missing affordable housing loom. But they help any future bidder or builder make calculations.

No more 130% AMI-only buildings?

One thing that's likely: the state will no longer allow developers to get the tax break and only deliver below-market, "affordable" units at 130% of Area Median Income (AMI), aimed at middle-income households mostly earning six figures.

That's been the pattern for the last four Atlantic Yards/Pacific Park towers to open: 662 Pacific St. (B15), 18 Sixth Ave. (B4), and 595 Dean St. (B12/B13).

A policy brief (also bottom) from New York University’s Furman Center acknowledges that 421-a was too generous:

The affordability requirements in the most recent 421-a version resulted in a significant number of units serving moderate- and middle-income households rather than the lower-income households most vulnerable to housing instability. In part, that reflected an attempt to offer options that would allow developers in different markets to choose the option that made projects viable given rents in different neighborhoods. But that attempt allowed many developers to offer affordable units at rents out of reach for lower-income households, even where the market would have supported deeper affordability. Those are the risks of trying to have a program without requirements specific to different rental market conditions.

What now?

As the Real Deal noted, city officials have focused on an average of 60% to 80% of AMI, which does not mean the latter is a ceiling, but surely shifts the focus toward those struggling more in the housing market.

The Furman Center suggests a "new tax exemption is necessary to spur sufficient new construction of rental apartments to meet demand,” but suggests it should be crafted to ensure that it provides for low-income families:

Instead, any new policy should effectively stimulate the construction of new rental housing, ensure that a meaningful portion of this housing is affordable, and distribute development benefits and responsibilities equitably across the city's diverse neighborhoods.

That could mean, however, that fewer raw numbers of units are produced. In the past, elected officials liked to tout totals, not the actual affordability.

Rising AMI

Moreover, AMI has risen dramatically, resetting the base from which income-targeted housing is calculated, and leaving lower-income households particularly rent-burdened.

The Furman Center report notes a 32.3% percent rise in AMIs over the latest four-year span, corresponding to a compounded annual growth rate of 7.2%, while from 2011 to 2015 the compounded growth rate was 1.3%.



That means, as shown in the chart above, an ever increasing percentage of renters below various AMI thresholds.

Who's been helped?

To put it in Atlantic Yards/Pacific Park terms, as of 2022, 82.8% of city renters were below the income thresholds to even apply for the new buildings at 130% of AMI. (That's the official thresholds; the developers did stretch the income guidelines and did not ask for maximum allowable rents.)

As noted in the chart below, few households earning above 100% of AMI, much less 130% of AMI, are rent-burdened, and then tend to live in areas where school performance is better. That said, they wouldn't mind a new, rent-stabilized unit that's below-market compared to the rest of the building.

The numbers and the trade-off

Furman notes that policymakers "will have to choose between providing more income-restricted homes and providing those homes to the households who need them the most," but it is possible to ask for more, and to require "landowners to adjust expectations around a newly enacted 421-a program," which could lower land prices.

For "High Rent High Rise (Manhattan)" locations, which are not quite the same as Atlantic Yards/Pacific Park, but the closest model, Furman suggests that average AMI could be 50%:

Given shifts in AMI and our modeling of adjusted land values, for sites in the highest rent markets, we project that projects could remain financially viable if the affordability required were made more aggressive than the Affordable New York requirement (Option A) that 25 percent of the units be income-restricted along these terms: 10 percent of the units at 40 percent of AMI, 10 percent to households at 60 percent AMI, and 5 percent to households at 130 percent of AMI (a total average AMI of 64 percent). The modeling indicates that the 130 percent AMI tier could be eliminated, but the share of units that would be income-restricted could remain at 25 percent, with AMIs even reaching a lowered average threshold of 50 percent AMI.

Writes Furman:

In the mid-rent markets, Affordable New York allowed developers to income restrict 30 percent of the units at 130 percent of AMI in recognition of the fact that 130 percent of AMI would be at, or slightly above, the local market rent, but income-restricting those units would make them rent stabilized. Our model suggests that a different approach could be to prioritize reaching rents that serve lower income households, but such an approach would require lowering the share of units that are income restricted to just 10 percent of the units,  at an average household income in the 50 to 60 percent AMI range (to keep in line with the Affordable New York framework, an additional portion could be income-restricted at a higher AMI, to secure rent stabilization benefits for those units).

That's what the last four Atlantic Yards/Pacific Park buildings took advantage of, but it was clearly too generous, since the figures were way below "local market rent." 

So, if not 50% of AMI for the affordable units in future Atlantic Yards/Pacific Park buildings, surely below 130% of AMI.