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New Bills – The 421-a and Affordable Housing Debate

by Josh Burd, Dec 18, 2006
 

At each of the City Council's stated meetings, council members introduce bills, most of which will never become laws (for the process by which bills become laws, click here). As a regular feature, Gotham Gazette discusses some of the legislation proposed at each meeting.

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City Hall is in the midst of a debate over how to reform a tax incentive program for developers. Members introduced competing bills to reform this plan – called 421-a – at the council's last stated meeting. The goal of the reform is to shift the plan away from simply encouraging real estate development – as was its original intention – and towards the creation of affordable housing. The Bloomberg administration recently released its own recommendations. Legislation concerning the bills is expected to come up for a vote on Wednesday, December 20.

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421-A: INCENTIVES FOR DEVELOPMENT

During a housing crisis in 1971, city officials worried that developers would not build in New York. To spark residential development, the city started the 421-a program, which offered property tax exemptions to those willing to construct apartment buildings. As the real estate market in certain neighborhoods heated up starting in the mid-1980s, the city began to tweak the program. The focus shifted away from encouraging all development, toward the need for affordable housing.

In 1985 the city decided that in much of Manhattan – the so-called exclusion zone – developers would have to build a certain amount of affordable housing in order to qualify for the tax benefit. More recently, this zone has been slightly expanded, and now includes Manhattan between Houston Street and 96th Street, as well as a small part of Brooklyn. Developers working inside the exclusion zone can meet the affordable housing requirement by either designating 20 percent of the new project as affordable housing, or by building a corresponding amount of affordable housing in other areas in the city.

Elsewhere in the city – including all of Queens, the Bronx, and Staten Island -- anyone building is still eligible for the original incentives, affordable housing or no. Also, developers building in certain neighborhoods with historically dire housing problems – known as“neighborhood preservation” areas -- qualify for extra incentives.

Critics have called for reform of the 421-a system, arguing that developers don’t need expensive incentives to build in New York's red-hot housing market. The program costs the city money, they say, and benefits building owners and developers of luxury apartments far more than it encourages affordable housing.

According to a report released in April by Habitat for Humanity-New York City and the Pratt Center for Community Development:
• The program will cost the city $320 million in 2006, up from $130 million in 2002.
• The program has given tax breaks to more than 100,000 housing units since it began, but as of 2003, only about 8 percent are affordable housing.
• Developers only put a fraction of the money they saved on taxes toward affordable housing sites, which are mostly in the Bronx.

The prospect of a overhaul concerns the real estate industry, which says too drastic of a change will stymie construction in certain areas.

Several plans have been floated that would increase the size of the exclusion zone, cap the total value of the incentives, and force developers to build affordable housing on the site of the development for which they are receiving the tax rebate. These changes are expected to save the city money, because fewer developers will be eligible, and both the mayor and the council want to use the savings to start an affordable housing fund.

BLOOMBERG’S PLAN

In response to criticisms of the incentive program and as part of a broader campaign to create affordable housing, Mayor Michael Bloomberg created a task force in February to evaluate 421-a. In October, after several months in which administration officials consulted with the real estate community and advocacy groups, Bloomberg announced the recommendations of the task force.

It called for Expanding the exclusion zone. The new area would include more of Lower Manhattan, parts of Harlem up to 110th Street, DUMBO, Brooklyn Heights, and more of the Brooklyn and Queens waterfront.

The task force also wants to eliminate the special benefit that enables developers to qualify for the incentives without building affordable housing in the neighborhood preservation zones in historically underdeveloped areas. With many of the markets now recovering, this benefit would be reduced to the standard incentive in areas such as Williamsburg, Jackson Heights, and Kingsbridge.

QUINN’S PLAN

Many members of the City Council criticized Bloomberg’s plan, asking for more sweeping reform. Speaker Christine Quinn developed her own plan, which she introduced on December 6. At the last stated meeting, Quinn introduced it as a bill to be considered by the council, with 28 other council members as co-sponsors.

Quinn said the bill, which is scheduled to come up for a vote on December 20, “strikes the right balance” and “reflects input from just about every member of the City Council.”

“This bill will create more affordable housing and encourage development, while also protecting our public dollars from over-subsidizing new luxury development,” Quinn said.

Bloomberg has endorsed the compromise.

The plan (Intro 486 ) proposes an even greater expansion of the exclusion zone. The new area would include Manhattan up to 136th Street on the West Side and 117th Street on the East Side, as well as many more areas in Brooklyn.

The bill also calls for a review every two years of the zone's borders in order to account for changes in the market.

Quinn’s bill would also effectively eliminate the program that allows developers inside the designated area to provide affordable housing at a separate location; those qualifying for the benefit would have to build 20 percent affordable housing on-site.

OTHER PLANS

Annabel Palma and 22 other council members introduced a competing bill that would make much more aggressive requirement on affordable housing. Intro 490 calls for completely eliminating the area in which developers must build affordable housing in order to qualify for the 421-a benefit, instead making the requirement citywide. The bill would also raise the affordable housing requirement to 30 percent for developers to be eligible for the exemptions.

“A lot has changed since we had to give developers tax breaks to build here,” Palma said. “With the hundreds of millions of dollars the developers entering this program are saving, asking 30 percent is not too much.”

The bill also calls for the affordable housing units to be comparable in size to market-rate units and for them to remain affordable after the tax-break expires.

Council members Alan Gerson, Leitita James, and Rosie Mendez proposed a separate bill that would require developers to set aside 35 percent of a development be for affordable housing in order to qualify for 421-a benefits.

THE COUNCIL VOTE AND BEYOND

Supporters of the competing plans have spent the last two weeks negotiating over specifics. Quinn says her bill now has the support of over half of the council. Palma's office said its bill will probably not come up for a vote on December 20, but that its supporters are negotiating to get Quinn's bill to call for even more affordable housing.

But the action at City Hall is not seen as the end of the issue. Palma has said her bill was intended to influence the state legislature, which has the final say. Assembly Housing Chair Vito Lopez is preparing to take up the issue, from a point of view closer to Palma's than to Quinn's.

“I would assume that the bill that passes is going to be the Christine Quinn bill,” he told the New York Times. “That improves on the mayor’s bill, and the mayor’s bill improved on the law. I believe it does not go far enough."

 




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