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Know Your Rights
Source: Capital New York
Subject: Housing & Environmental Justice
Type: Media Coverage

De Blasio’s 421-a dilemma

On a recent afternoon, a group of a few dozen people braved the chilly February winds and marched down West 57th Street in Manhattan—the heart of the so-called billionaire’s row—armed with signs and singing chants: “Subsidize our house, not their penthouse!” was a favorite.

They planned to end the march in front of One57, the superluxury, supertall tower that symbolizes the high-end condo boom along this strip of Midtown once famous more for its shopping than as a glamorous home address. Gathered under the building’s heated awning, they stood on the edge of the sidewalk and faced the entrance to the lobby of the hotel that shares the building with the residential development.

Their demand? That a four-decade-old tax abatement program—one that helped subsidize the construction of this 1,000-foot-tall tower, where a unit recently sold for $100 million—be eliminated. It is their tax dollars, the protesters said, that are providing swimming pools for the global elite.

As I stood near the group, a line of curious construction workers navigated the crowded sidewalk. One guy in a brown Carhartt jacket stopped to ask me what the hubbub was. “They’re rallying against 421-a tax abatements,” I offered. “Ah, fucking millionaires,” the burly man said. “Billionaires,” I replied, prompting a stern look. “Trust me, I know,” the worker said. “I put the building up.”

There is a mounting effort to repeal 421-a and replace it with something else, which means various things depending on whom you ask. Most tenant groups say they want it gone altogether, replaced by something as progressive as a direct payment to help the poor afford apartments.

They point out that there was more than $1 billion in foregone tax revenue last year because of the program, with about 150,000 units receiving benefits. They also say it is old and antiquated—meant for a time when New York was in bad shape and just about any development was a good thing.

“We haven’t ended the housing crisis for New York’s working families by giving away $1.2 billion in corporate welfare to subsidize luxury housing developments,” Javier Valdez, the co-executive director of Make the Road New York, told me. “It’s time to end the 421-a program and invest that money in rebuilding our infrastructure instead, including building affordable units for working class communities.”


The 421-a program will sunset this June if the state Legislature and Governor Andrew Cuomo do not act to renew it. Around the same time, the state’s rent control law will also expire. For Mayor Bill de Blasio, a liberal who rose to power with the support of some of the people who want the program gone, the timing puts him in a real political pickle.

De Blasio’s ambitious housing agenda puts him on both sides of tenant advocates and on both sides of Big Real Estate, too. On one hand, he is calling for a strong rent control law—something tenant groups have cheered and the real estate industry bemoaned. On the other hand, his ambitious plan to build 80,000 affordable units, preserve 120,000 affordable units, and foster the development of 160,000 market-rate units depends on the cooperation of the real estate industry. His agenda is, in many ways, in developers’ hands. And they aren’t inclined to see 421-a go anywhere.

Meanwhile, revisions to the 421-a program that have required the building of 20 percent as affordable units have not put enough of a dent in the housing crisis to justify the program, tenant groups believe, which means there is little middle ground for the mayor to stake out.

And the conflicts do not end there for the mayor: His fellow Democrats in the state Assembly, still stinging from the arrest of long-time Speaker Sheldon Silver, are likely to use the tax credits as leverage in their effort to strengthen the rent laws. The freshly minted Republican majority in the Senate, also trying to navigate the new order of things in Albany, are likely to use rent laws as leverage to get subsidies.

To get a sense of how important this thing is for the mayor, consider how he describes his overall initiative: “The largest affordable housing program that any city, any state has attempted in a ten-year time span in the history of the republic.”

He hopes for 200,000 units. It’s an enormous goal and one that will take tremendous political capital to make happen, even beyond the looming back and forth in Albany. So far, de Blasio is off to a modest start. At the beginning of January, or a year into his administration, he said he had covered 8.8 percent of that total. That’s in a strong housing market with the winds at his back.

The mayor and his top housing officials have said the effort will ramp up over time, and that they must first enact new policies meant to spur the creation of more housing. One central piece of that is the implementation of something called mandatory-inclusionary zoning. In a nutshell, de Blasio wants to rezone wide swaths of the city to allow for denser construction, but would also require all new housing projects to include a permanently affordable apartments. That will start to play out this spring.

But that push, which is meant to drive construction deeper into the outer boroughs, will also require the use of city, state and federal subsides to ensure developers are willing to build in some neighborhoods. The rezonings will touch communities where the housing market simply isn’t strong enough for market-rate housing to subsidize the cost of building affordable, no matter how tall builders can build.

And in some places the city is targeting for rezonings—particularly East New York—the price of land is already skyrocketing on the speculation. That’s where 421-a comes in. De Blasio says he needs 421-a in order to reach his goal of building 80,000 affordable units.


The challenge facing the administration has apparently not been lost on de Blasio’s top aides. In a recent speech at Baruch College, Department of Housing and Preservation Commissioner Vicki Been recognized that luck has been a factor so far and the real work lies head. She told the audience that she knew “much of that success is because we’re in a strong market, we’re benefiting from low interest rates, we’re benefiting from the fact that people are worried with what might happen with 421-a.”

“It’s going to be a big year—421-a is up for renewal, rent regulation is up for renewal, we will introduce a mandatory inclusionary housing in the spring, we’ll be introducing some new resilient over the spring,” she also said. “This spring, I think more than ever, we need to remember that the perfect can sometimes be worthy of the good. We have to just get moving and that will require taking some risks, embracing some change, making some comprises, and dealing with some of the messiness that’s going to come through in the next six months as we try to tackle all of these things together.”

What’s unlikely to happen is the repeal of 421-a, which many of the people at the One57 protest were advocating. It’s of course not a new call and does appear to be inherently connected to rent regulation, which some tenant lobbyists mention in the same breath. And while some quietly recognize it’s unlikely they’d ever succeed at wiping away the program, they keep repeating the call.

Exactly what would happen if 421-a was eliminated is really unclear. Even academics say, privately, that they just don’t know. The Real Estate Board of New York, the powerful lobby for the industry, suggests the program is a central component to why housing production is moving as swiftly as it is today.

“A robust 421-a program is one element in a menu of options that will be needed to make Mayor de Blasio’s affordable housing plan a reality,” Steven Spinola, the group’s outgoing president, tells us an email. “Without this critical tax incentive, the city would see a sharp drop off in the production of new housing units, a further skewing of the residential market toward condominium rather than rental production, and an accelerated tightening of housing costs for renters and buyers alike.”

This many years after the program was enacted, it does seem to be part of the fabric of how development happens in New York. Not everybody who builds residential buildings receive tax credits, but there are certainly many examples of where developers said it was necessary to get shovels in the ground. The program also played into what de Blasio considers his biggest success yet in forcing developers to include affordable housing; the 1,723-unit Astoria Cove project along the Queens waterfront, where 27 percent of the units are to be available at below market-rate rents.

One thing that could happen if the program was eliminated is that land values would fall, potentially freezing development. Here’s why: Developers factor available subsidies into how much they’re willing to pay for land. If 421-a did not exist, those developers may not be willing to pay as much for property. If land owners can no longer fetch the astronomical prices that are being paid now, they may decide to take their real estate off the market until values come back up.

That is, of course, just one theory. But it’s by no means a crazy one. Take it from someone without a dog in the fight.

“There is always the risk that eliminating or significantly curtailing the 421-a property tax exemption would reduce the amount that developers of rental housing would be willing to pay for land,” Mark Willis, the executive director of New York University’s Furman Center, said in an email. “This possible decrease in land values might affect the new development pipeline in the short run. The city must carefully consider this possible impact, especially in light of the need for more housing affordable to middle- and lower-income New Yorkers.”

More likely to happen are changes to the program. Exactly what isn’t at all clear. Even the de Blasio administration says it does not yet know what reforms it will seek in Albany. Been, the housing commissioner, testified before a City Council committee in January to offer a full-throttled defense of 421-a. But she also recognized that it is complicated and confusing, and could perhaps produce more affordable housing than it does now.

One idea would be to expand the program’s geographic exclusion zone across the city. Projects within that zone, which covers all of Manhattan and parts of the other boroughs, are required to include affordable housing in order to receive an abatement. But that’s one of several things the administration is considering, Been said.

“The benefit is now a confusing hodgepodge of exemption terms; should those terms be simplified, shortened, or extended?” she told council members, according to her prepared remarks.

“We are considering whether the proportion of the units in the building that must be affordable should be revised,” Been, the housing commissioner, testified before a City Council committee in January as part of a full-throated defense of 421-a. “We are reviewing the arguments over whether all affordable units should be on-site, whether an off-site option should be allowed, and whether the certificate program that was shut down should be reinvented. We are reviewing calls for permanent or longer affordability terms. And finally we are asking how benefit terms and other requirements can be rationalized and simplified, and how can we streamline administration?”

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