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Precious 421-a Tax Break Is Back In Play Signaling A Boom In High Rise Construction In NYC

After months of negotiation, the coveted 421-a tax break has been reinstated. Bring on the cranes and hard hats.

By Jeff Vasishta November 16, 2016

Mention a 421-a tax break to the average New Yorker and their eyes are likely to glaze over. Mention it to a developer and they are likely to start salivating and stalking you. To builders of high rise towers these coveted tax breaks are manna from heaven. The affordable housing trade-off is the one all are happy to make. An impasse between NY State (Governor Cuomo) and the city (Mayor de Blasio’s administration) resulted in the tax break expiring in January and, consequently, in a significant drop-off in new construction permits.

To put it in perspective, in Brooklyn, 18,708 units were approved in the first nine months of 2015, before the tax break expired. During the same period this year, after 421-a expired, 3,112 units were approved, a slump of 83.4 percent, according to an analysis of building records by The Real Deal.

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Developers such as David Kramer of Hudson Companies have said without 421-a, it’s not profitable to build rentals in Brooklyn. Banks’ reluctance to lend for condos and increasing prices for land have not helped.

During the lay-off the tax break has been tweaked. Here’s what’s new:

  • Developers of eligible buildings pay zero property tax for 35 years (up from 21 years).
  • Affordable apartments with income limitations must stay affordable for 40 years (up from 35 years).
  • The amount of affordable housing set aside (20 percent) hasn’t changed, despite earlier attempts to raise it to 25 or 30 percent.
  • Projects with 300 rental units or more in Community Boards 1 and 2 in Brooklyn will pay construction workers on average an hourly wage of $45 (including benefits).
  • Buildings with 50 percent or more affordable units don’t have to pay construction workers $45 an hour.

The 421-a tax break was contentious for a number of reasons. Various non-profits, including the Municipal Art Society and Association for Neighborhood and Housing Development, opposed it for not creating enough affordable housing. Then there was the subject of wages. Gov Cuomo and labor unions were annoyed that it did not require a prevailing wage for construction work. It did, however, require such a wage mandate for building service workers.

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De Blasio took the side of developers, insisting such a wage requirement would make it too expensive to build low- to middle-income housing — his ultimate goal in reforming 421-a. His top housing official, Alicia Glen, said the requirement of a prevailing wage would cost the city 17,000 below-market-rate units. With some buildings abusing the rules, taking the breaks without keeping the units affordable, derision arose. The de Blasio administration has been accused of accelerating gentrification through the glut of new construction that the break enabled. Now, in a twist, de Blasio has mandated that buildings that take the break, set some units aside for homeless, irking the developers he was accused of appeasing.

Here’s what developers and brokers told Brownstoner about the new deal:

Ofer Cohen, founder and president, commercial real estate firm TerraCRG:

“The renewal of a 421-a program will be instrumental in re-activating the development market in Brooklyn. Since the expiration of the old program, development site trade volume came to almost a complete halt. Without a program, no new rental product can be built. If this deal goes through, we believe developers will respond with renewed activity, in purchasing, planning and breaking ground to rental unit production, a portion of which will be affordable. The 300-unit cap is great for Brooklyn because the average project size in Brooklyn is under 50 units and very few projects are over 300. This means most of the projects will not have the burden of prevailing wage requirement under the new proposal.”

David Kramer, principal, Hudson Companies:

“I think it’s great for the City to finalize a new 421-a deal. It ensures more housing can get built and more affordable housing will be produced.”

Chris Havens, commercial real estate broker, Citi Habitats:

“Let’s see how it comes out of the state legislature. Any new commercial space [in mixed-use buildings] would be welcomed.

With the 421-a tax breaks once again given the go ahead expect New York’s shimmery skyline to become ever more crowded.”

 

 

Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

Jeff is a writer, husband and father but not necessarily in that order. As a music journalist he counts Prince, Beyonce and Quincy Jones amongst those he’s interviewed. He's also owned and flipped homes in Brooklyn, NJ, CT and PA.

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