Affordable New York
By Scott Beyer
6 min read
How a city supports both workers and low rent housing
New York City can be as rough, cost-wise, on developers as it is on average joes. For years, the city’s builders have complained that a mix of high property taxes, land values and regulatory costs makes it impossible to build workforce apartments. The New York state government has tried offsetting these costs by issuing tax abatements that lower the tax burden for developers building affordable units. The most recent of these programs, Affordable New York, is nearly a year old, and has shown potential in getting things built.
The state legislature passed the Affordable New York program in April of 2017. This followed negotiations between the Real Estate Board of New York, and Governor Andrew Cuomo, who went to the table representing tenants and unions. Affordable New York gives developers property tax breaks to build affordable units on- or off-site from market-rate projects. The exemptions last 35 years, and the percent AMI structure varies depending on how and where developers build. The program applies retroactively to projects that began after January 1, 2016, and before June 15, 2022.
The program is a spinoff of the 421-a tax abatement, which began in 1971 and ended in early 2016. Over the decades, 421-a proved fairly successful at generating affordable housing. According to a 2016 analysis by the Furman Center at New York University, the program, despite having ended, still has 146,134 units under exemption. Over half are affordable.
There has, however, been some notoriety around 421-a. For one, it’s expensive. The current 421-a tax break costs the city about $1.4 billion per year in lost revenue. This is money that gets steered away from city coffers, representing a loss of local autonomy and revenue due to state action.
Most of that money, meanwhile, is not spent on affordable housing. The Association for Neighborhood and Housing Development, a local advocacy group, has noted that only $0.11 of every 421-a dollar supports affordable units. Much of the rest goes for market-rate construction, which in New York City remains important, since it adds to overall supply, but still amounts to luxury housing. This explains why thousands of tenant protestors were out marching on the Brooklyn Bridge after Affordable New York passed.
A third issue with 421-a is that it encouraged lobbying in Albany. A 2016 Pro Publica investigation found that the corporate giveaway had, since 2000, inspired $21 million in political donations. The largest ones came from some New York City development stalwarts.
These issues, in part, caused 421-a to fade out for a year, before being rebranded as Affordable New York. The new policy will cost $120 million annually—along with the $1.4 billion in 421-a abatements—and encourages roughly the same mixed-income housing model. But there are differences that result from Cuomo’s bargaining.
One is that Affordable New York is, thanks to wage provisions, an overt sop to labor. Developers must pay $60/hour in wages, benefits and payroll taxes to workers on projects south of 96th street in Manhattan. That rate is $45/hour for workers on projects within a mile of the East River waterfront. This mandate of paying above-market-rate wages to workers is common state policy, and has been found to substantially raise costs for public and private projects. A study by the New York Independent Budget Office found that federal Davis-Bacon prevailing wage laws, to name one example, increased construction costs by 23 percent on 211 federal projects in New York City. While Affordable New York’s wage requirements are smaller, they’re still at odds with the very name and goal of Cuomo’s program. They will increase the barriers faced by developers – and the final price of units built.
Affordable New York does not, however, appear to strengthen rent stabilization laws, which have long been a bane to landlords and developers, and a possible factor in Gotham’s high housing prices. As Amy Zimmer noted for DNAinfo.com, the program’s expiration date was not synced with the rent regulation’s 2019 expiration.
In the past, she writes, “when 421-a tax breaks and rent regulation laws came up for a vote simultaneously, lobbyists for rent-regulated tenants were leaning on the same lawmakers at the same time as the powerful real estate lobby,” she writes. “Now that the laws’ expiration dates are staggered, the real estate lobby will likely have more sway over Albany.”
These factors notwithstanding, it seems Affordable New York is serving its purpose of adding affordable units. In 2014, Mayor Bill de Blasio set a goal of building or preserving 200,000 units over ten years. By the end of 2017, the city was on pace to surpass this, having added or preserved 87,557 units. Over 28,000 of these were new units, and about 21,000 of them were for households making 80 percent AMI or less. Some of the units, states the city website, are attributable to this tax break.
Affordable New York’s impact has also been felt anecdotally. In 2015, before 421-a expired, the city’s Department of Buildings saw a surge in construction permits filed, and authorized a 180 percent increase in permits from the year before. Permits fell in 2016 after 421-a ended, but now that the abatement has returned, so too have some projects that were put on hold, such as the Durst organization’s Hallets Point development in Queens. Sean Campion, a researcher for the Citizens Budget Commission, says financial conditions cause developers to favor the program.
“There’s no requirement that developers choose affordable housing. But most of them do, and part of the reason is because with the property taxes in New York City, it’s very difficult to make rental housing pencil out without tax incentives.”
Affordable New York also dovetails with the city’s inclusionary zoning program, which requires that developers who get upzonings make a percentage of units affordable. This program, too, is effectively mandatory, says Campion, since the financial realities of building in New York City often make upzonings necessary.
Affordable New York is thus a program that is tailored to—and in some ways perpetuates—the dilemma of building in New York City. The city is a place where high structural costs mix with government mandates that further increase costs. But at least this program is encouraging more housing in the process.
Story Contact:
Sean Campion
Senior Research Associate, Citizen Budget Commission
scampion@cbcny.org
