Do housing developers need a (tax) break?

Good morning. It's Tuesday. Today we'll learn about a tax break that expires in 2022 — and why the fight over its replacement will impact the future of New York City. We'll also get details on why the City Council is expected to override Mayor Eric Adams' veto of two bills today.

In conversations about New York City's housing crisis, you almost always hear three numbers and a letter: 421a. They point to a program that offered tax breaks to developers that many of them, and some elected officials, said were essential to getting rental housing built. Then 421a expired in 2022. I asked Mihir Zaveri, who covers Metro counter housing, to assess what 421a meant for the city and why there is a fight over its replacement.

The 421a program had been around for a long time. It dated from the 1970s. How has this shaped the cityscape? Why was 421a so important for the construction of rental buildings?

The problems in New York were different forty and fifty years ago: the city was in dire need of revitalization. In recent years, the city has faced another problem. More people want to live there than is reasonably possible due to the number of available apartments, causing rents and house prices to rise.

That has made it urgent to build, and especially to build apartments that could be affordable to the moderate- and lower-income people on whom the economy depends.

In addition, almost everyone agrees that the property tax system, which taxes rental buildings at much higher rates than condos, co-ops and many single-family homes, is a barrier to making that happen. Construction costs are high, and many housing experts believe that nothing would be built — including many market-rate rental buildings, let alone affordable housing — without some tax exemptions.

Has 421a addressed that?

According to research from New York University's Furman Center, more than two-thirds of the 117,042 rental properties built between 2000 and 2010 benefited from 421a. The economic effects of 421a will continue to be felt even though it expires in 2022: the tax exemptions typically last 35 years after construction.

What did 421a have to do with affordability, and how have the rules under 421a changed in the fifty years that 421a was in effect?

The earliest version only promoted the development of market-rate apartments, according to the Furman Center. In the 1980s, some affordability requirements were added for Manhattan, and later for other parts of the city.

The version we are most familiar with today was introduced in 2016 and played a role in many of the new developments in Downtown Brooklyn and Long Island City. It required developers to keep some units affordable for people with different income levels and different family sizes.

How did that work?

The most common option was to keep about a third of a building's apartments affordable for people earning 130 percent of something called the “median area income” — a complex measure calculated by the federal government and used by housing officials. By 2023, those apartments would have cost $4,130 a month for a two-bedroom — not exactly affordable.

Why was 421a allowed to expire?

The program has long been criticized as a giveaway to the real estate industry and a poor use of public resources. Left-wing lawmakers led the opposition, saying they would not support a replacement unless the state also enacted stronger tenant protections.

Have developers suspended their rental projects since 421a expired?

Kind of. In 2023, developers planned to build 9,090 units, up from 45,593 in 2022, according to a December analysis of New York City Buildings Department data by the Real Estate Board of New York, the industry's lobbying arm.

But it's hard to separate the effect of 421a expiration from the effect of the high interest rates that currently make borrowing expensive. It's possible that even if 421a were in effect, developers would wait until rates dropped to build.

In 2022, Governor Kathy Hochul proposed a replacement for 421a. Why hasn't that become a reality? What are the chances of replacement now?

The governor needs the support of the left wing of her party, which is powerful in the legislature, to get a new program passed. That won't happen without new protections for tenants, and especially new safeguards against evictions, which she has opposed.

People like Mayor Eric Adams, influential labor unions and many housing advocates are calling on government officials to make a deal. But the real estate industry, which has donated heavily to Hochul, is steadfastly opposed to new tenant protections. So it seems unlikely for the time being that anything will happen.

Weather

Expect a partly sunny day with a high in the low 40s. Overnight will be mostly cloudy with temperatures dropping into the low 30s.

ALTERNATE PARKING

In effect until February 9 (New Year's Eve).

The latest New York news

The City Council is expected to override Mayor Eric Adams' veto of two bills today. The accounts would:

Adams has opposed the two bills since the Council passed them with a veto-proof majority in December. Council President Adrienne Adams said Monday she was “very confident” she had the votes to override the mayor, who claims the bills would make the city and its prison system more dangerous.

Council leaders have said the police stop bill is needed to eradicate the remnants of discriminatory policing.

Debate over the bill intensified this weekend when Yusef Salaam, a newly elected council member who was wrongly convicted in 1990 as a member of the Central Park Five, was stopped while driving with his family. Salaam, who said the officer had not given a reason for the stop, said the episode pointed to the need for greater transparency that the bill would provide.

Mayor Adams called the stop a “perfect example” of police interaction. Police released body camera video of the officer who stopped Salaam, saying he pulled him over because the dark tint on the windows was “outside legal limits” under state law. Salaam said he would vote to override the mayor's veto of the police stop bill.

METROPOLITAN diary

Flooded

Dear Diary:

It was 1961 and I was standing on the shoreline of Bergen Beach with my friend Ricky. We were two 13-year-old boys from Brooklyn, peering over the waves of Jamaica Bay looking for a canoe.

We were the fourth leg of a cross-bay relay race from the John Rueger Sea Explorer Base in Sheepshead Bay. The other teams had long ago handed over their canoes, which were heading for the finish.

Ricky and I waited, wondering where our team was. Then we saw no canoe, but two heads bobbing in the waves.

As they got closer we realized the canoe had become submerged. It was filled to the side rails with water, but still floating. Our teammates went ashore and together we tipped the canoe to dump the water out.

Ricky and I jumped in and paddled away furiously. We hadn't gone far when the water started filling the canoe again. There were holes in the bottom.

Soon a Sea Explorer escort boat pulled up next to us, and we were told to climb aboard. The other teams were at the base and the race was over. We were an hour, maybe an hour and a half behind everyone else.

As we rode back in the escort boat, I was furious and ready to give the organizers a piece of my mind. I never got the chance.