Press Release
New CSS Report Calls for Ending Tax Abatement Subsidizing Luxury Housing and Little Else
Urges state policymakers to put taxpayers’ dollars towards public, social and supportive housing
New York’s most expensive housing program, the 421-a tax exemption, was signed into law in 1971 at a time when state legislators were concerned about the threat of disinvestment in the private residential market and urban flight, arguing that an incentive was needed to stimulate the development of affordable housing.
Today, New York’s housing and real estate market is vastly different, characterized by hyper investment in luxury end housing development, widespread gentrification, and a dwindling supply of affordable housing. In terms of foregone revenue, 421-a costs New York City more than any other single housing expenditure, including city and federal spending on public housing, Section-8 vouchers and new subsidized housing development. Despite repeated attempts to reform the program, this expensive legacy of a bygone era has not delivered meaningful improvements in housing affordability.
Tracing the program’s history and current design, a new Community Service Society (CSS) report offers an in-depth look at the 421-a exemption. In addition to examining the history of 421-a, and reforms made to the program, the report offers a detailed analysis of the forces and factors responsible for the program’s rising cost over time. In Fiscal Year 2021, the 421-a exemption cost the City a record $1.7 billion in forgone tax revenue -- a staggering 402 percent increase in inflation-adjusted costs over the past three decades.
“The data is indisputable. It’s time to scrap 421-a,” said David R. Jones, President and CEO of the Community Service Society, referring to findings from the report, 421-a at 50: Rising Costs, Diminished Returns. “This wasteful public subsidy to developers is a fundamentally-flawed program that should be abolished and replaced with a housing strategy centered on actually promoting affordable housing for those with the most severe housing hardships.”
On June 15, the 421-a tax exemption will expire. Currently, the program exempts new buildings from taxes for 35 years or more if developers meet certain conditions. As an “as of right” program, buildings automatically qualify for the subsidy if they meet certain conditions. Over the years the program has been modified to reflect increased affordability requirements. But those modifications have failed to bring down costs (as exemptions are now granted for a longer time period) or prevented the city’s affordable housing crisis from deepening. Governor Hochul has promised to let the tax break expire in June and replace it with a new subsidy program that would deepen affordability while keeping the essential structure of the tax incentive unchanged and adding a new condominium option for people who earn higher wages or salaries than more than 75 percent of all New York City residents.
In the report, CSS Housing Analyst Samuel Stein and CSS Senior Economist Debipriya Chatterjee argue that because 421-a is so expensive and ill-targeted to the city’s housing needs, and because previous efforts to rein in and refocus the program have failed, the best course of action is to let the program expire. Rather than overhaul the program, they argue that the public would be better served by revising the property tax system as a whole and by designing new tools to provide city and state support for public, social and supportive housing. Any new incentive program the state might consider in the future should be designed to provide developers benefits that are proportionate to the amount and cost of the affordable housing they produce.
The report makes the following policy recommendations:
Protect Tenants: The state should pass legislation protecting rent stabilized and income-qualifying tenants in buildings with expiring 421-a tax benefits. A641 (Rosenthal)/ S76 (Hoylman) would bar landlords from sending inaccurate lease riders to tenants in income-targeted 421-a apartments falsely stating that their homes will be removed from rent stabilization when the tax break expires.
Audit Recipients of 421-a: Pass S6384 (Hoylman)/ A7265 (Gallagher), which mandates annual compliance audits on past 421-a grantees to ensure they are complying with the legislation’s affordability, rent stabilization and wage components.
“No matter how many amendments the legislature makes to the program, it remains primarily a tax break for wealthy developers, not a driver of housing affordability,” said Samuel Stein, CSS Housing Analyst and report co-author. “But this tax break for wealthy developers results in increased tax burden for all non-421-a landlords—a majority of whom are owners of moderately priced and rent-stabilized housing—who then pass it on to their tenants by charging higher rents.”
“Not only does this program have an immediate cost, in the foregone revenue by the City, but it also contributes to heating the housing market as owners and developers capitalize the tax exemption into increased land values, which then translate into higher sale prices and rental costs,” said Debipriya Chatterjee, CSS Senior Economist and co-author on the report. “And in an expensive housing market, developers tout the need for the tax break to recover construction cost, thus locking the city into a vicious cycle where 421-a ensures its own continuation.”
"This luxury tax break has cost New Yorkers much more than it has provided benefit,” said Emerita Torres, Vice President of Policy, Research and Advocacy at CSS. “Instead of adding layers of modest reform to the 421-a tax exemption, it is time to end the program entirely and develop a new housing subsidy that meets the needs of today’s New York, where truly affordable housing is in prime demand. The data is clear; now we need the political will to make it happen."
"Seven years ago, Tom Waters and I reviewed the 421-a program and found it deeply flawed given its high cost and low public benefit,” said Senior Housing Policy Analyst Victor Bach. “Samuel Stein and Debipriya Chatterjee's new report shows not only that 421-a hasn’t improved, but that it has gotten worse – the program is more expensive and less effective than ever."
In a subsequent report CSS will examine the 421-a program’s:
- Current affordability requirements, including both income targeting and rent stabilization;
- Why these measures are insufficient and ineffective;
- How 421-a effects overall land and housing markets;
The report builds on the research and advocacy of Tom Waters, CSS housing policy analyst from 2005 to 2020, and is dedicated to his memory and legacy.