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New Push To Repeal Affordable New York Opens Old Wounds, Stalling Land Market

The renewal of the Affordable New York Housing Program, a treasured tax abatement among city developers, is still well over a year away. But the real estate community is bracing for major changes to the system, and the uncertainty is taking its toll on the market.

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The program, previously called 421a, was overhauled, renamed and renewed back in 2017. It currently allows developers a tax exemption for 35 years if they set aside 25% to 30% of the units for low- and moderate-income tenants when they build a market-rate rental building with more than 300 units.

But it has long had fierce critics, who say it is simply a giveaway to developers and doesn’t generate enough housing that is actually affordable to low-income New Yorkers to justify the break. The program is set to expire in June 2022, and state bills to repeal it are circulating. Real estate players say the uncertainty is affecting negotiating and pricing on development.

“Nobody has a crystal ball, no one knows exactly how the state will amend the abatement, but it has a huge impact on the way they can build,” B6 Real Estate Advisors Senior Managing Director DJ Johnson said.

To make use of the current program, developers will need to start on their development by June 15, 2022, Johnson said, which means in the world of urban development, the timeline is getting tight.

There is widespread belief, he said, that the political environment is such that the program will undergo some major changes and potentially look more like the city’s Mandatory Inclusionary Housing program, which requires cheaper apartments than the Affordable New York abatement. If that happens, he believes land prices could take as much as a 30% hit.

“If you own real estate, and if you're a real estate developer, I think you should be talking to your senators about how important the abatement program is and how it affects your ability to deliver a project,” he said. “I just don't think it's time to start interfering with the New York rebound. We want to see private investment.” 

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New York Gov. Andrew Cuomo

Just how receptive the elected officials will be is another matter. Democrats now have a supermajority in the legislature, and progressive New York State Assembly member Linda Rosenthal has sponsored a bill to repeal the program entirely, which was reintroduced this year.

“It’s a boondoggle. We are wasting precious funds giving out tax breaks in return for not enough,” she said. “The whole dynamic needs to shift.”

She pointed to the infamous example of Extell Development's millions in tax breaks at One57 that resulted in just 66 affordable housing units being built in the Bronx.

She said investment in Section 8 vouchers and the Mitchell-Lama program is preferable to the program in generating affordable housing, and noted a recently floated proposal from Gov. Andrew Cuomo to convert empty hotels and office buildings into affordable homes is a step in the right direction.

“If [developers] were sincere in the goal of creating affordable housing, they wouldn’t insist on using this outdated scheme that isn’t appropriate for 2021,” she said in response to the argument that removing it will stop investment in its tracks.

State Sen. Zellnor Myrie is sponsoring a bill to repeal the provision, which is co-sponsored by Sens. Liz Krueger, Julia Salazar and Gustavo Rivera.

“The landlords who have taken advantage of tenants and of public funds by abusing the 421a tax benefit program should never have been able to do so,” Salazar said in a statement. “Fraud and lack of accountability in the 421-a program is not an anomaly; it is rampant.”

Meanwhile, the chairman of the Senate Committee on Housing, Construction and Community Development, Sen. Brian Kavanagh, who co-sponsored rent reform legislation in 2019, told Bisnow in a statement the program should no longer exist unless it can be overhauled.

“The current version of the 421-a tax exemption program has meant that the city forgoes an enormous amount of tax revenue in exchange for a limited amount of affordable housing,” his statement said. “The program is far too generous to property owners and costly to the City relative to the public benefit it is supposed to create. In addition, there is evidence that many property owners haven’t complied with the requirements of the program.”

Senate Deputy Leader Michael Gianaris, who led the charge against Amazon’s plans to build a headquarters in Long Island City, said via a statement that the program is often a “tool for bad landlords to game the system and abuse tenants” and said the government must “seriously reevaluate the future of this program.”

City Comptroller Scott Stringer, who is running for mayor, has called for the system to end, arguing it costs the city $1.6B each year and is highly inefficient.

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Cea Weaver, a tenant advocate in New York for the Upstate/Downstate Housing Alliance

“It’s kind of like déjà vu, we went through this in 2008 and then 2015 … When it got renewed last time, it changed drastically and from the developers' standpoint, the program became stricter with affordability requirements,” said YuhTyng Patka, who is the chair of the New York City Real Estate Tax and Incentives Practice Group at Duval & Stachenfeld and is vehemently against eliminating the program.

She argues that without the incentive, there is simply no way developers will build affordable housing at all. She argues Affordable New York pushes the creation of badly needed middle-income housing for the city and repealing it would slow the production of stabilized units.

“421a is the driving force behind new construction of residential units in New York City, we saw back in 2015 when 421a ceased to exist, and without certainty that it was going to be renewed we saw projects dried up," she said. "Projects stalled and projects died and projects didn’t even happen.”

Samuel Stein, a housing policy analyst at the Community Service Society, said the program has driven up the cost of land in the city, making housing more costly overall. The group supports the repeal, and Stein pointed to 2015 research that showed that of the 163,000 units that scored the tax exemption in 2014, just a small fraction were actually affordable.

“There is a program at the state level right now called the Housing Access voucher program, which would be a New York State Section 8 program,” he said. “The initial funding for that is estimated at $500M. If we got rid of 421a, we could triple the size of that program, and really get people into housing, take a huge bite out of the homelessness crisis statewide."

He’s certain the community will demand a different approach when it comes up for renewal.

“A lot has changed since the program was created," he said. "The city’s budget has tremendous gaps in it, and handing out extremely expensive breaks will look different.”

The Real Estate Board of New York is warning that removing private sector involvement and the use of abatements will cripple affordable housing production.

“Addressing the City’s affordable housing crisis requires the production of much more housing, particularly below market rate rental units,” REBNY President James Whelan said in a statement. “Reality and math show that isn’t possible without private sector financing and some form of property tax abatement to address the immense construction and land costs and the City’s inequitable property tax system that is punitive regarding the creation and ownership of rental housing.”

Slate Property Group principal David Schwartz, who said his company has built about 20 projects using the break, thinks there are some things that should be rejiggered.

“I’m not saying this is a perfect program … [but] if we don’t have some sort of way to make it more economical to build new rental apartments, the cost of those rental apartments will only go up, and the landlords of those apartments will end up making more money,” he said.

He said now is the time to discuss and examine the program in a bipartisan way to see what should be adapted.

But Cea Weaver, the campaign coordinator at Housing Justice for All, a statewide coalition of tenant groups that successfully pushed for 2019’s rent reform, said she will be pushing to have the break removed.

“It costs us billions and billions in foregone tax revenue. To me it’s bonkers,” she said. “I think we need more housing, I don’t disagree with [the real estate community] there. But there are a lot of other people who are willing to build housing that is more affordable and is for the social good and that helps our housing crisis. I don’t really think the shit like Hudson Yards helps solve the housing crisis, and I think it’s a stretch to say that it does.”