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Tax Breaks For Affordable Housing


Every two weeks the New York City Council holds its "Stated Meeting" to introduce and pass legislation. As a regular feature, Gotham Gazette covers these meetings.

The debate over how to reform a tax incentive program for developers, which once seemed likely to sharply divide the City Council, came to a relatively peaceful conclusion on December 20. In its final stated meeting of the year, the council overwhelmingly passed a compromise measure to reform this plan, called 421-a. The changes are intended to shift the plan away from simply encouraging real estate development –- as was its original intention –- and toward the creation of affordable housing.

Under the measure approved by the council, developers in many parts of Manhattan and the Brooklyn would get the property tax exemption only if one fifth of the apartments in a new project are affordable. It would also create a fund to finance affordable housing.

But the debate over 421-a has not ended. In order to remain in existence, the program, with or without changes, must be approved by the state legislature by the end of 2007. Assemblymember Vito Lopez, chair of the assembly housing committee, has indicated that he wants tighter restrictions on 421-a.

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.

Buildings elsewhere in the city – including all of Queens, the Bronx, and Staten Island – have remained eligible for the original incentives, affordable housing or no.

The measure approved by council would expand the exclusion zone to upper and lower Manhattan, as well as to such Brooklyn neighborhoods as Park Slope, Carroll Gardens, Williamsburg and Greenpoint.

The City Council bill would also:

  • Set up a commission, appointed by the mayor and the City Council, to review the boundaries of the exclusionary zone every two years.
  • Require developers to create the affordable housing on the site of the rest of development for which they receive the abatement. Now, they can build the lower priced apartments in another building, or even another borough.
  • Target some of the affordable units to lower income families
  • Create a $400 million fund to create affordable housing, particularly in the city’s poorest neighborhood. The changes in the 421-a system are expected to save the city money, because fewer developers will be eligible, and this money will go toward the affordable housing fund. The fund replaces another program that encouraged such development but which council believes benefited developers more than the city’s lower income residents.
  • Set a cap on the subsidies for building out the exclusion zone to limit the tax breaks for luxury buildings.

And the council will also urge the state government to create a similar plan top encourage development of affordable one, two and three family homes and to create ways to ensure that buildings remain affordable for many years into the future.

A FIRST STEP

City Council Speaker Christine Quinn, who negotiated the council plan, called it “fair and balanced.” “It recognizes you can create housing through an abatement but you have to make that abatement something that developers will want to take,” she told council.

Earlier Annabel Palma and 22 other council members introduced had introduced a competing bill that would have put much more aggressive requirements on affordable housing. It called for requiring all developers throughout the city – not just in certain parts of it -- to build affordable housing in order to qualify for the 421-a benefit. The bill would have required that 30 percent of all units, not 20 percent, be affordable if developers were to qualify for the exemption.

Council members Alan Gerson, Letitia 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.

But following long negotiations, many of these opponents accepted Quinn’s plans. “We need to look at this piece of legislations and look at the significant improvements,” Palma said. And David Yassky, who had cosponsored the Palma bill, said the measure approved by council “will result in more affordable housing and in eliminating some of the most egregious disparities in the property tax.”

But not all council members agreed.

Councilmember Charles Barron and Hiram Monserrate expressed concern that the affordable units would not be affordable enough for many New Yorkers. “The mayor and the council may be able to live with this bill, but poor and working class New Yorkers are not going to be able to live in New York City,” Barron said.

While saying the bill was indeed an improvement, Rosie Mendez said, “I still believe the bill could be better yet.” In particular, she said, developers should have to make 30 percent of the apartments in any development affordable.

Tony Avella faulted the whole notion of giving developers tax benefits in New York‘s booming real estate market. “I find troubling the fact that we are gong to give huge tax abatements to luxury developers who are making millions of dollars off each project,” he said.

OVERHAULING 421-A

Avella’s comments echo those of other critics of the 421-a system, who argue that developers don’t need expensive incentives to build in New York these days. 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.

MAKING COMPROMISES

In response to criticisms of the incentive program and as part of a broader campaign to create affordable housing, Bloomberg created a task force in February to evaluate 421-a. It called for expanding the exclusion zone to include more of Lower Manhattan, parts of Harlem up to 110th Street, DUMBO, Brooklyn Heights, and more of the Brooklyn and Queens waterfront.

Many members of the City Council criticized Bloomberg’s plan, asking for more sweeping reform. Quinn developed her own plan, which she introduced, with 28 other council members as co-sponsors. Bloomberg endorsed the compromise.

Supporters of the competing plans spent weeks negotiating over specifics.

During the stated meeting, many council members praised the negotiations as a victory for democracy, applauding the speaker, various administration officials, council members and staff for long hours of consultation that derailed plans for Christmas shopping and watching football games.

They congratulated themselves themselves for disagreeing on an issue and working it out. Saying debate on substantive matters was laudable, Bill de Blasio said, “This is a very positive day…. A lot has been accomplished in these past weeks.”

Quinn herself acknowledged how unusual such debate was. “Some people commented that it was a little odd that there was more than one bill on this topic in City Council,” she said. “That indicated these has not been enough significant debate in the past on important topics.”

But debate or not, the final vote was lopsided, with 44 council members voting for Quinn’s housing measure and 5 (Barron, Avella, Monserrate, Mendez and Darlene Mealy) opposed.

 

 

New Bills -- The 421-a and Affordable Housing Debate


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.

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.

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."

 

Housing And The Feds


New York City is not alone in facing a housing crisis. It is a national problem, manifested in a range of problems, from the lack of affordable housing to predatory lending to discrimination. And a national problem deserves a federal solution.

That was the conclusion of some 20 housing policy experts and advocates at a recent roundtable discussion on housing problems in the city, organized by Congresswoman Nydia Velazquez . They agreed that the timing is right to bring the federal government back into the business of affordable housing: Democrats, who are considered more responsive to housing issues, will soon control both houses of Congress.

But it’s going to be tough, Velazquez said. There have been 12 years of “disinvestment” in affordable housing. “There is the will, the drive, the commitment and the passion. But these aren’t the only factors.”

Other factors include:

  • A disconnect between local people working on housing issues and Washington, D.C.
  • the federal deficit and the limits it places on new spending programs
  • the bipartisan effort necessary to enact legislation.

 

The Disconnect

“A national organizing effort – that’s the missing key,” said Irene Baldwin, executive director of the Association for Neighborhood and Housing Development. “You’ve seen organizing efforts have a real impact on city housing policy and you’ve seen it affect state housing policy.

“You can do what you can locally, but the problem is in Washington. You need strong national networks that I don’t see out there.”

“That’s an understatement,” agreed Barbara Sard, the director of housing policy at the Center on Budget and Policy Priorities. “And it’s not just New York. There are many places where there’s real concern on the local level about affordable housing but it doesn’t translate to Washington.”

Grassroots support is critical if housing is to become a priority, Velazquez said, recalling her previous work to prevent cuts to other programs.

“We were able to activate groups nationwide to block” Bush administration cuts to other programs, she explained. “That’s what we need to do to this. We need to activate all the big advocates nationwide, so they talk to their members of Congress.

“We need to develop this list of emails, telephone numbers and fax numbers from the bottom up. The reality is affordable housing is an issue that is impacting every corner of America.”

Representative-elect Yvette Clarke agreed: “Every other interest group has found a way to communicate, to organize their folks effectively.”

While housing organizers and grassroots activists may be disconnected, however, networks of housing policy experts do exist, noted Victor Bach of the Community Service Society.

“The housing community is together, it has been together for years,” Bach said. “There has been a very strong group of advocates, but they have had little success.”

He listed a variety of groups that work on national housing policy: The National Low Income Housing Coalition, the Center on Budget and Policy Priorities and the National Alliance to End Homelessness.

What is lacking, Bach said, is the will.

“The will to act on housing compared to other key issues needs to be intensified,” he said. “The question is how to get more capital and commitment to housing. Someone’s got to put it all together and say, ‘Look, we have a national commitment here and we’ve been eroding it for decades.’”

That person, to many, is Rep. Barney Frank of Massachusetts. Already, Sard said, Frank has been speaking frequently about the affordable housing problems facing communities around the country. As the new chair of the House Financial Services Committee, which drafts housing policy legislation, Frank is set to turn his words into action.

But any effort will need people at the grassroots to push it, advocates said. To that end, housing policy groups are welcoming new voices calling for action on affordable housing.

“We would love to get more state partners involved, that’s part of our agenda,” said Nicole Letourneau, communication director at the National Low Income Housing Coalition. “We’re always looking to make more connections.”

Advocates and organizers are already coming together, Baldwin said, even if only slowly: “That’s the missing piece. We can all do our separate piece but we really need a national organizing platform to move it forward.”

The affordable housing crisis is evoking more and more anger and frustration in neighborhoods around New York City. At a recent series of town hall meetings organized by Manhattan Borough President Scott Stringer, New Yorkers made that plain. The trick for advocates is translating that frustration into pressure on Congress to draft comprehensive affordable housing legislation.

The Federal Deficit

When organizers and advocates do come together and if they convince Congress that affordable housing is a top priority, they would still face a major obstacle: The federal deficit. It effectively limits the extent of any affordable housing programs Congress members might suggest, Bach said.

“Unless Congress is able to roll back the tax cuts and deal with the deficit, it’s going to be hard for the most powerful voices to address housing,” he said. “The deficit is a major negative in the picture.”

“It is definitely true that the overall budget is going to be a big constraint,” said Sard. “So the challenge then becomes can you find money in some ways that aren’t going to count.”

One way Congress could avoid having to deal with those budget issues is by establishing a national low-income housing trust fund using 5 percent of the profits from the congressionally chartered mortgage lending giants Fannie Mae and Freddie Mac.

(The city is also looking at setting up a $300 million affordable housing trust fund in legislation proposed as a compromise on the 421-a property tax exemption program. The Housing First! coalition said $300 million was too little and is pushing for a city trust fund of $1 billion.)

For a national program, advocates said about $5 billion would be needed to develop about 1.5 million affordable housing units, Letourneau said.

“We’ve been pushing for several years for a national housing trust fund that would create a dedicated source of revenue” for affordable housing development, she said. “We think the time is right for this to finally move forward.”

Rep. Frank will introduce the bill in the new Congress, she said./p>

A Bipartisan Approach

When delegates for the Republican National Convention were helping to build a house at a Habitat for Humanity site, protestors showed up, reminding them, “Habitat is great, we still need Section 8!”

“But inside the message was basically the same, we need Section 8,” said Roland Lewis, executive director of Habitat for Humanity and co-chair of the Housing First! coalition that advocates for more affordable housing.

“It really brought home the point that housing is and can be a common ground issue that can cut across party lines and ideological lines,” Lewis said. “If you’re a Republican governor in New Hampshire and you can’t find places for your workforce to live – the teachers and police and firefighters – it’s the same problem we have here in New York City.”

Indeed, when the Bush administration has contemplated cutting Section 8, the federal rent subsidy program, the proposals have provoked an outcry across the country. Mayors – Democrats and Republicans alike – have urged the administration to leave Section 8 alone and the administration has backed down.

Nevertheless, bipartisan efforts often mean forging compromises, Velazquez reminded housing advocates at the roundtable discussion.

“We’re going to be in control, but also we are going to have to work in a bipartisan way,” Velazquez said. “We have to reach out to moderate Republicans.”

Lewis echoed that sentiment, saying affordable housing appeals to interests that cross party and ideological lines.

“You can appeal to people who believe in social justice … and to folks who want better and more business for the companies that drive our economy,” he said. “That’s how it’s a common ground issue.

“It’s not a Republican idea or a Democratic idea that people who play by the rules and work hard should have a decent place to live,” he continued. “That appeals to people across the aisles.”

“For the first time in a long time, the strong but small minority of members of Congress who were setting the agenda is now being replaced by some leadership where decisions will be made by a majority of the members,” Letournea said. “We sort of see this as a new day. That being said any affordable housing initiative that have move forward in the past have always been a bipartisan effort and that will continue.”

Joe Lamport is the assistant director of the City-Wide Task Force on Housing Court, a coalition of community housing organizations.  

 



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