LATEST NEWS

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.

RelatedAging Manhattan Skyscrapers Get Do Overs To Lure New Clients

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.

RelatedMulti-Family Townhouses Are Being Returned To Their Single Family Glory At A Record Clip

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.

  • AGORAFY
    Stefano Boeri, the architect mastermind behind the famous plant-covered skyscrapers, is now designing Forest Cities in Liuzhou, China. #ForestCity #China https://goo.gl/PsTUwv
  • AGORAFY
    Auction is the second scheduled in a month for a One57 unit and it could set a NYC foreclosure record. #BillionairesRow #Foreclosures https://goo.gl/NZ3zqD
  • AGORAFY
    Once a couch-surfing website, Airbnb moves on to luxury properties, further disrupting hospitality industry. #Airbnb #Luxury https://goo.gl/7TpLk6
Four Countries To Retire In With $200K In Savings—And How Much Real Estate Costs There
Ever dreamed of retiring abroad? You know, affordable healthcare, better climate, more positive news—becoming an expat seems like an enticing option, especially one you no…
While Other Real Estate Platforms Start Charging Agents $3-Per-Day Exposure Fee, Agorafy Remains Accessible To All
Real Estate searching platform are always finding news ways to diversify their revenues models. Case in point—on Tuesday July 18, Streeteasy, one of New York…
Is Real Estate Crowdfunding The Fix That Urban Housing In America Really Needs?
Saving money for a down payment? One can only hope. Most millennial in their twenties or thirties are mortified that they might never be able…
Brooklyn And Queens’ Real Estate Sub-Markets Continue Their Ascent To The New Heights
So, the sales prices in Brooklyn and Queens hit record highs. Again. Just like they did in December 2016 and at the end of this…
The Economy Of Car Services And Delivery Apps Might Be Making NYC Less Eco-Friendly
Living in an eco-friendly neighborhood is a good thing. And, as it always the case with the good things, it also costs more. High rents…
Building Communities: What The U.S. Developers Should Learn From Soho China
As our world emerges into the new period of globalization and technology, some of the most important by-products of this process are buildings that have…
Five Reasons Why All Entrepreneurs Must Keep Their Eyes On China
It is hard to overestimate the importance of Chinese influence on the modern global economy. Carving out a place in Chinese market and winning over…
Airbnb Up Their Game With A New Luxury Tier Featuring Mansions And Villas
Airbnb is about to seriously up their game. First, the company started testing a new service called Select in an attempt to push accommodation listings…