- REAL ESTATE EDUCATION
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Elimination of Tax Incentive Would Make Housing Crisis Worse
February 18, 2015
by Steven Spinola
There have been a few recent calls for the elimination of the 421-a tax exemption program, an important incentive that helps create affordable housing. Eliminating the 421-a program would render Mayor de Blasio’s efforts to greatly expand the creation of more affordable housing largely impotent. 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.
The 421-a program, which was created in 1971, has been an integral component of new housing production in New York City. Since the mid-1980’s it has also played a critical role in the city’s efforts to build affordable housing. As real property taxes began their dramatic rise in the late 1990s, the burden on residential rental property has been staggering and unsustainable. Rental housing now pays more than 30 percent of their gross revenue to taxes.
Some recent cheap shots at the program have omitted further key reforms that have been in place for years. The changes made in 2008 ended the certificate program which permitted the creation of affordable housing offsite and which had permitted tax exemption benefits for luxury condominiums. The 2008 changes mandated that affordable housing be built on site to receive the benefit. Today, the 421-a tax program is essential to the creation of most multi-family housing in New York City. With the City’s need for much more affordable housing, now is the time to strengthen the credit, not scrap it, to ensure it generates more affordable units.
One misguided advocate is calling for the elimination of the 421-a program and wants it replaced it with vouchers for a fraction of New York’s low-income households. The plan would devote one billion dollars for housing vouchers for 100,000 low-income New Yorkers, or only 10% of households earning less than $40,000 a year. While this idea will benefit the 100,000 households receiving the vouchers, it does nothing to alleviate the pressure on millions of New Yorkers seeking housing they can afford that is caused by a shortage of market rate and affordable apartments. In ten years, this proposal would cost $10 billion dollars, create no new jobs and, most importantly, would not create a single new unit of housing.
On the other hand, the Mayor’s plan calls for the creation of 240,000 new market rate and affordable housing units over the next ten years. To offset the property tax burden and construction and land costs, incentives like 421-a will be necessary to create the new units.
In other REBNY news:
SPOTLIGHT ON TRANSPORTATION: Don’t miss our recent educational video on the critical role transportation infrastructure plays our region’s overall economic health and development. Visit rebny.com to watch our Chairman Rob Speyer and New York’s leading transportation experts discuss the role mass transit plays in the metropolitan area, major projects underway, and future challenges facing our transit system.
REBNY's Residential Sales Agent Boot Camp, Cost of Doing Business: Put Your Hand In Your Pocket And Build Your Net Worth," is February 19th! This event, sponsored by Bank of America will be taking place in the Mendik Education Center from 9:00 a.m. to 11:00 a.m., and is free for all REBNY members. Registration is required, and more information can be found by emailing REBNYResidentialEvents@REBNY.com.
February 19th is our Residential Sales Boot Camp Seminar from 9 a.m. to 11 a.m. in the Mendik Education Center! Sponsored by Bank of America, this free residential seminar is open to all REBNY residential members, and you can register at REBNYResidentialEvents@REBNY.com.
REBNY’s next residential Rental Clinic seminar is this Friday, February 20th, from 9:30 a.m. to 10:30 a.m. in the Mendik Education Center. This seminar will feature guest speakers Daniel Marrello of Town Fifth Avenue LLC and Douglas Wagner of Bond NY Properties and is hosted by REBNY’s Residential Rental Committee. For more information on how to register, please visit REBNY.com or contact Jeanne Oliver-Taylor at JTaylor@REBNY.com.