Gov. Kathy Hochul told builders, bankers, and others who gathered in midtown Manhattan on Thursday for an annual affordable housing conference that they have her support, but she did not mention the lucrative property tax exemption for multifamily developments known as 421-a, which expires next month.
“I'm going to continue supporting this industry through legislation, the bully pulpit, executive orders,” Hochul said to applause. “And I'm bringing my shovel all over the state of New York to continue supporting you because we're going to keep building back this state and giving people again, that very basic human right, a home.”
The debate over whether state lawmakers should let 421-a expire on June 15th pits backers, including Mayor Eric Adams and real estate developers, who said the program or some version of it is essential for creating affordable housing in New York City, against tenant groups and other critics who have argued the program sacrificed $1.77 billion in property tax revenue without producing housing the the average city resident can afford.
“I'm glad 421-a is expiring, and folks that are trying to scare the legislature into saving a program everyone knows is broken for their own interests are not helping serve the broader public interest of actually addressing our affordability crisis,” Comptroller Brad Lander said in an interview.
Under 421-a, developers who set aside at least 30% of the buildings’ units as affordable receive a discount on property taxes for 35 years. If New York state lawmakers do not renew, replace, or extend it, 421-a will disappear.
Last-minute lobbying efforts were on display in Albany this week with Adams traveling to the capital and urging state lawmakers to support a modified version of the 421-a program proposed by the governor.
“I think 421-a, or a version of it, is going to play a vital role and continue to watch us deal with the housing crises that we're facing,” Adams said at a press conference on Wednesday.
Other backers, including the Real Estate Board of New York (REBNY), the lobbying arm of the powerful real estate industry, said that without the tax discount, developing rental buildings in New York City wouldn’t be profitable because construction costs and property taxes are too high. In New York City, multifamily rental housing is taxed at a much higher rate than other property classes such as single-family houses.
If the 421-a program were to disappear for good, developers warned it would lead to a shortage of rental buildings, driving up rents and worsening the housing crunch.
“We'll also have a massive shortfall of affordable units, which will put even more pressure on low-income New Yorkers, and likely exacerbate the housing crisis and the homelessness crisis,” said Jordan Barowitz, a spokesman for the Durst Organization, which relies on the tax abatement to build rental housing.
Detractors, including tenant groups and New York City Comptroller Brad Lander, said real estate developers will continue to build without the $1.77 billion property tax credit, and state lawmakers could instead use the tax revenue to build housing that New Yorkers can afford.
The 421-a tax exemption program was created in the 1970s to encourage real estate developers to build new residential housing in New York City. To attract private capital, state lawmakers limit increases in property taxes imposed on new buildings.
Over 50 years, 421-a underwent major changes. At first, it promoted the production of market-rate apartments. In the 1980s, a new provision was added, which required developers to include affordable units in certain Manhattan neighborhoods. Later, it was expanded to parts of other boroughs, according to the NYU Furman Center. Since 2007, state lawmakers required all units set aside as affordable housing within newly built developments under the 421-a program to be rent-stabilized for 35 years after they were constructed.
The program, which has never been permanent, lapsed in 2016. It was revamped and brought back in 2017.
Number of affordable units built under 421-a
Under 421-a, about 13,700 affordable units were built between 2016 to 2021, according to the NYU Furman Center. The majority of those income-restricted units were built for families earning 130% of the area median income, the top end of the income range permitted under the legislation. At that rate, a family of three would have had to earn more than $100,000 in 2021 to afford the rent for most units built under 421-a, according to Lander, who said that makes them unaffordable to most city renters.
The average New York City household income is about $75,000 to $80,000, which translates to 60% to 70% of the area median income, said Barika Williams, the executive director of the Association for Neighborhood and Housing Development, a coalition of housing organizations. More than half of city renters can’t afford the income-restricted units built under the 421-a program.
“We've had decades of 421-a policies where they've been pumping units into the top end of the market and it hasn't relieved our overall affordability pressures and it hasn't lessened our housing crisis,” Williams said. “We don't have to be faced with this false choice of saying it's more luxury rentals or nothing.”
Basha Gerhards, senior vice president of planning for REBNY, said the industry is already seeing rental housing production slow down because the number of building permit filings has dropped. When there are fewer rental apartments on the market, she said that will drive up demand and put pressure on market-rate as well as income-restricted apartments.
“When we have less production overall, that really means less affordable options for everyone,” Gerhards said.