Mayor Michael R. Bloomberg today backed the compromise reforms of the 421-a property tax program that his Administration negotiated with Council Speaker Christine Quinn and which the Speaker will introduce as legislation tomorrow. The proposed legislation builds on the reform framework laid out by the Mayor's 421-a task force and comes after days of discussions between senior aides to the Mayor, the Council Speaker, Housing and Buildings Chairman Eric Martin Dilan and other members of the City Council, and Council staff.
“The Speaker’s compromise legislation strikes the right balance towards maintaining a strong housing market while also providing increased funding for affordable housing,” said Mayor Bloomberg. “This legislation encourages new construction throughout the five boroughs and advances our $7.5 billion New Housing Marketplace Plan, the largest municipal affordable housing plan in the nation’s history.”
“These proposals will allow us to continue with unprecedented growth in the housing market and to ensure that affordable housing is built in the future,” said Deputy Mayor Dan Doctoroff. “Because we are eliminating unnecessary incentives on market rate housing, we can shift incentives towards affordable housing. Not only will these reforms maintain the strength of the current market, they are really just smarter use of resources.”
“This legislation will shape the City’s housing market for the future,” said Housing Preservation and Development Commissioner Shaun Donovan. “The changes to 421-a will remove unnecessary tax breaks for luxury developments and better use that money to build affordable housing and support the strong middle-class housing market in the areas outside the exclusion zone. The reformed 421-a program will further advance the aims of the Mayor’s $7.5 billion New Housing Marketplace Plan, the largest municipal affordable housing plan in the nation’s history.”
The 421-a tax incentive program was created in 1971 to spur housing development at a time when housing market conditions were dire. Under the program, housing developers within designated areas are given tax incentives to develop housing. The program has helped fuel the construction of over 110,000 apartments in the City. However, the City’s real estate market has changed dramatically since that time. In recognition of the need for reform of the program, the Mayor convened a 26-member task force in February 2006 to examine 421-a and suggest changes that would better align it with the current real estate environment. The task force issued recommendations in October.
The proposed legislation would:
Expand the 421-a geographic exclusion area (GEA). The current exclusion zone, the area where developments are required to provide affordable housing in exchange for 421-a tax benefits, includes Manhattan from 14th Street to 96th Street and the Greenpoint-Williamsburg waterfront in Brooklyn. In order to receive the tax abatement inside the exclusion zone, 20% of the on-site development would be reserved for New Yorkers making up to 80% of Area Medium Income (equivalent to $56,700 for a family of four or $39,700 for a single person). The expanded area would include neighborhoods with substantially high real estate values and significant zoning density: most of Harlem, Lower Manhattan, DUMBO, Brooklyn Heights, Downtown Brooklyn, Williamsburg and segments of the Brooklyn/Queens waterfront. The legislation will include a requirement that a commission comprised of the Council and the Administration meet every two years to review clearly established criteria and assess the housing markets of neighborhoods. These criteria will ensure that the GEA is regularly expanded as new housing construction markets warrant, based on objective criteria.
Abolish the existing negotiable certificates program and create an Affordable Housing Trust Fund. The negotiable certificates program allows developers in the geographic exclusion area to receive 421-a benefits in return for purchasing certificates sold by developers of affordable housing outside the exclusion zone. Eliminating the certificate program would require market-rate developers in the GEA to pay full taxes unless providing affordable housing on-site. The result would increase tax revenue to be used for a dedicated $400 million Affordable Housing Trust Fund and generate $300 million for the Mayor’s New Housing Marketplace Plan. The Fund will be targeted primarily to the 15 poorest neighborhoods in the City, as based on federal census numbers.
Grant twenty-five years of benefits only to developments that provide affordable housing. The reformed 421-a would allow only developments that provide affordable housing the maximum duration of benefits. Other developments would receive the standard fifteen-year 421-a tax benefits. Currently developments in neighborhoods such as Williamsburg in Brooklyn, Jackson Heights in Queens, Kingsbridge in the Bronx, Port Richmond in Staten Island and much of northern Manhattan can receive twenty-five years of benefits without providing affordable housing.
- Set a limit on the total amount of 421-a tax benefits that any market rate unit may receive. Only the first $65,000 of an apartment’s assessed value would receive the 421-a tax exemption, currently there is no limit. This ‘luxury cap’ would mean that buildings with an average sales price of over $650,000 will get a limited tax exemption. Projects providing affordable housing on-site would not be subject to the cap, helping to increase the incentives to provide affordable housing.
The administration and council will also work with the State Legislature as they consider renewal of the 421-a program, which otherwise will sunset on December 31, 2007.