First conceived in 1971, the 421-a tax exemption was billed as a stimulant for a lagging private residential market with a strong affordability mission built in. But as the economics of the city’s housing market changed over the years, it has evolved into a spectacularly inefficient affordable housing program that today costs the city more than a million dollars per affordable apartment created.
The billion dollars lost annually on this tax abatement debacle is more than the combined rents of all tenants in the New York City Housing Authority. It is more than the entire budget of the city’s Department of Housing Preservation and Development. It is enough to fund 100,000 new rent vouchers similar to Section 8, and thereby provide housing to many of the city’s poorest people.
Instead, it produces well under 14 cents of affordable housing investment for every dollar of tax subsidies. Of the tax revenue forgone through 421-a, a majority of it is being used to subsidize buildings that would have been developed without the tax exemptions.
On June 15, the 421-a tax exemption will expire. And expire it should. However, Albany lawmakers are considering “reforms” to the law that would make it a more efficient affordable housing tool. This was tried in 2006 and 2007 with no significant improvement. In fact, previous amendments to the program included exempting some Manhattan luxury properties from complying with the affordability rule altogether.
It’s time to scrap 421-a, and come up with a housing program that is accountable and actually promotes affordability. A recent study of 421-a by my organization determined that the city’s poorest people are not being targeted in the affordable units created under 421-a. Instead, the tax exemption is currently subsidizing more than 150,000 apartments, of which fewer than 12,500 are “affordable” — meaning the rents for these units are limited to fit households earning about $46,600 for a family of three. Households in this income band face significant housing stresses. But the housing needs of poorer people are even greater. 421-a has produced no units for households with incomes below or near the poverty line, except when combined with other subsidies.
The report, “New York’s Unaffordable Housing Program: Time to End 421-a,” lays out the argument against renewing the 421-a tax exemption for new residential construction in New York City – even with reforms. We believe that 421-a is so deeply flawed that it cannot serve as the starting point for crafting an efficient subsidy or tax incentive for affordable housing.
Mayor de Blasio has now announced his own proposal on 421-a. But nothing in the mayor’s proposal makes us change our minds. In essence, the mayor proposes to modestly increase affordability requirements while greatly increasing the value of the tax exemption, by extending the benefit period from the current 10 to 25 years up to 35 years for every building.
This will increase the number of affordable apartments built, but does not address the grotesque inefficiency of the program. What’s more, many of the affordable units will rent for $2,500 a month. Not only is that unaffordable to the low- and middle-income people who should benefit from affordable housing policy, it is not even below market in the neighborhoods where these buildings will be built.
Instead of tinkering with 421-a, policymakers should replace it with a targeted tax credit similar to the federal Low Income Housing Tax Credit, a rent subsidy similar to federal Section 8, or a combination of subsidies similar to Mitchell-Lama. But the guiding principal should be that developers must apply for the benefit based on the affordability they promise to create.
Let’s stop wasting time negotiating amendments to what is a fundamentally-flawed program and devise one that is built on producing real affordability. Our housing policy already favors developers. With 421-a, New York has an opportunity to balance the scales, and better use the tax code to meet our most pressing housing needs.