The Developer's Tax Break
February 9th, 2011
This post was written by Alshawn Kelly Rushing.
As the city tries to rebuild its crumbling real estate industry, City Council members and community organizers gathered at the Department of Housing Preservation and Development’s headquarters today to protest an extension of a property tax reprieve.
The 421-a tax benefit program exempts developers from paying increases in property taxes on new multifamily buildings for up to 25 years. Originally created in the 1970s to encourage development in the city, the program was changed in 2008 to focus more on affordable housing.
For a new residential development to be eligible for the tax exemption, 20 percent of the units in it must be affordable. Any project that received a permit by June 2008 was exempt from the stricter rules, as long as it was complete or near completion by June 2011.
The Bloomberg administration has proposed extending the deadline in the hopes of reenergizing the real estate market in the city that took a huge hit during the financial crisis. If passed, the new deadline for developers would be June 2014. The break would apply to 7,000 to 10,000 new units currently under development.
The extensions drew criticism from supporters of affordable housing. Outside the Housing Preservation and Development headquarters, protesters held up banners and chanted “no more bailouts.”
“We simply cannot afford to extend hundreds of millions in tax breaks to bail out luxury housing development,” said Councilmember Brad Lander. “These developers should follow the rules, just like everyone else: include affordable units or pay your taxes.”
Councilmembers Jumaane Williams and Letitia James joined Lander, along with community organizers and advocates for affordable housing.
“Instead of strengthening rent laws, [Mayor Michael Bloomberg is] giving $420 million to the biggest, baddest real-estate developers in New York City,” said Judith Goldinger, supervising attorney for the Legal Aid Society. “The city should propose a solution that strengthens rather than undermining the 421-a program’s affordability goal.”
Dave Hanzel, policy director for the Association for Neighborhood and Housing Development, said, “Real estate speculators didn’t make the money they thought they would. It is not the taxpayers’ job to bail them out. The owners who failed in their gamble have two options: Pay property taxes or build affordable housing!”
The Real Estate Board of New York advocated for the changes. Michael Slattery, senior vice president of the board, called the proposed extension “prudent” on the city’s part.
“We haven’t been doing well in constructing housing in the last few years. Ö There was virtually no private sector development going on in the city for two years,” Slattery said. “I think we need to recognize that our city has been somewhat devastated by a lack of financing. New housing production is down 80 percent from the peak in 2008 from 30,000 units a year.”
According to a calculation from Lander, the extension could cost the city $420 million, a figure Slattery contests. “The costs were already factored in,” he said. “It shouldn’t cost the city anything.” According to Slattery, only a small portion of the 7,000 to 10,000 units would actually benefit from the extension.
The mayor’s office has not released a figure on how much the extension will cost, irking some council members.
“It is inexcusable that the City of New York has not even disclosed what this tax giveaway will cost,” said James. “It would cost half a billion dollars or more, while at the same time the mayor is proposing to lay off teachers, cut back on roads and bridges, and reduce spending on affordable housing.”
James and Lander have proposed increasing the amount of affordable units a development would need to get a 421-a exemption to 30 percent and above. James cites the lack of affordable housing in her district as a reason for this. “Despite the expansion and explosion of development, only 10 percent of housing in Downtown Brooklyn is affordable,” she said.
Correction: The post originally attributed the $420 million to the Independent Budget Office. The figure actually came from Brad Lander. The post has been corrected to reflect this.By Gail Robinson on February 9, 2011, 7:49 pm
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