The New York Times
Developers Fight to Keep a Lucrative Tax Break Amid New York’s Housing Crisis
Few big residential projects have been built without the break, known as 421a, which now costs the city $1.77 billion in lost tax revenue every year.
By Matthew Haag and Mihir Zaveri
March 31, 2022
Excerpts:
Jackson Park, an upscale apartment complex in Long Island City, Queens gets a $21 million annual tax break that virtually eliminates its property taxes.
Jackson Park is a city unto itself: 1,871 luxury apartments in glittering glass towers with a heated rooftop pool, a full-size indoor basketball court and a 1.6-acre private park. Penthouse residences, whose floor-to-ceiling windows offer panoramic Manhattan views, rent for $8,500 a month.
It also has another distinction. The sprawling development by Tishman Speyer, one of the country’s biggest private real estate companies, is the top beneficiary of New York City’s most generous property tax exemption. An annual reduction of $21 million nearly eliminates the tax bill on the site, which is worth an estimated $394 million and opened in 2018 on a former parking lot in Long Island City.
The subsidy is made possible through a 51-year-old tax-incentive program known as 421a, an esoteric name for a lucrative property-tax exemption that critics say has worsened the city’s housing affordability crisis by encouraging the construction of luxury buildings instead of lower-cost homes.
First introduced in the 1970s, the tax break for builders of multifamily housing in the city was meant to promote new residential construction when New York was facing a fiscal crisis and few developers were building anything. After the economy rebounded, the subsidy remained and started to evolve, slowly adding various affordability requirements to qualify for the tax break.
In recent decades, few big residential projects have been built without the tax break, subsidizing the construction of hundreds of thousands of apartments and condominiums.
Its supporters say that a tax incentive is necessary to help produce below-market-rate housing in a city with a dire shortage of homes. But even the industry’s lobbying group, the Real Estate Board of New York City, concedes that the program has not kept up with the city’s housing needs.
Now the future of the program, which is set to expire in June, is precarious, with fierce lobbying underway to expand the program or kill it entirely. Gov. Kathy Hochul is urgently seeking a replacement tax break that promotes slightly deeper and longer-lasting affordability. Supporters, which include the influential real estate industry and Mayor Eric Adams, say development of much of the desperately-needed affordable housing in New York City could all but disappear without such a program.
But the governor’s proposal has placed her at odds with the left wing of the Democratic Party, which is aggressively trying to eliminate the tax break, arguing that no version of 421a has done nearly enough to stem the housing affordability crisis.
Critics say too many apartments marketed as affordable are only within reach to families making well over $100,000 a year — far higher than the city’s median household income — and that loopholes in the program’s different versions have allowed some apartment and condominium buildings to not include any low-cost units.
In buildings with condos, the tax break extends to individual owners, an exemption available in some of the most prominent residential projects in Manhattan, including 35 Hudson Yards, a luxury condo tower. Whoever buys the full-floor penthouse on the 90th floor, currently for sale for $49.5 million, would pay just $27,500 in annual property taxes because of a 421a exemption that lasts 20 years. Without the tax break, the yearly property taxes would be $342,000.
Developers have tapped into the tax breaks at such scale that it costs New York City more than $1.77 billion in lost tax revenue annually, double the amount in 2010.
The chief criticism of 421a has never changed: It has amounted to a tax giveaway for builders who have used it to erect high-end residences and helped drive the city’s surging housing costs. “The program is indefensible,” said Brad Lander, the New York City Comptroller, who has called for the 421a program to be eliminated. “It’s a huge giveaway for developers for just a tiny handful of actually affordable units.”
Paula Crespo, a senior planner with the Pratt Center for Community Development, which has criticized the program, said she considers the tax break program “a missed opportunity, to require something back from the developer for these decades of tax exemptions.”
Governor Hochul has included in her budget proposal a plan to revamp the 421a tax program and force developers to build affordable units in all projects, something that is not currently required. In a significant change, some units would have to be kept “affordable” even after the tax deal expired.
For decades, the Real Estate Board of New York has helped defeat every serious effort by elected officials to eliminate the tax break. Today, the industry group has not changed its position on preserving the incentive, but its leaders concede that the tax program’s many iterations gave rise to luxury housing without enough lower-cost homes.
Matthew Haag covers the intersection of real estate and politics in the New York region. He previously was a general assignment and breaking news reporter at The Times and worked as an education reporter at The Dallas Morning News. @matthewhaag Mihir Zaveri covers housing in New York. @mihirzaveri
Comment:
Paraphrasing Blair Bertaccini of Manhattan, 14th Street, March 31: The only way we will solve the housing crisis is to stop treating housing like a commodity and believing that only private developers can construct housing. The solution would be to tax the wealthy and have the government construct the housing and lease it at rates affordable to working class New Yorkers. Expecting that enough affordable housing will trickle down from developments for the wealthy is not realistic; that will never happen.
Is housing a human right or is it a commodity for trade and profit? New York City needs to revamp its property tax system to tax all parcels at the same rate, without subsidies to any class of owners. Use the revenue for the public purchase of vacant and underutilized parcels, create a land bank and transfer those sites to non-profit developers. Moreover – change the property tax to a land value tax, thereby discouraging speculative land holding. LVT will help increase the supply of available parcels for land banking.
An update published in the New York Times reports that the 421a subsidy may be near its end. Despite heavy lobbying by the construction industry and Mayor Eric Adams who claims it will create good-paying construction jobs, critics argue that the tax break has aggravated the city’s housing affordability crisis by incentivizing the construction of luxury towers instead of lower-cost homes. How may socially owned permanent affordable housing units could have been built with that $1.77 billion in lost tax revenue?
Tax incentives need not be in the form of exemptions; they can be more effective in the form of tax shift from buildings to land – with no revenue loss.
Tom Gihring, Research Director
Common Ground OR-WA
