In the 1970s, New York City recognized that it needed to inspire developers to build new housing if it was going to keep up with the demand. The solution was the 421a tax break program that gave developers significant breaks on property taxes if they agreed to build housing in designated areas in all five boroughs.
Built into the program was a directive that tried to set aside 20 percent of all new development for affordable housing. Soon enough developers found loopholes, and the program was soon twisted into something it was not meant to be.
421a Tax Break Side Effects
It did not take long for developers to realize that they could use the 421a program to get tax breaks on luxury housing that they could rent for significantly higher prices. After a while, the majority of the new construction in New York City was geared around these new luxury housing units that were priced out of the reach of the average New York City family.
Another unintended side effect of 421a was to “juice” land prices by having the city subsidize luxury housing built on formerly vacant or recently rehabilitated property. Activists sounded the alarm about inflated land prices, but developers continued to take advantage of a program that helped to put considerably more profits in their pockets.
The Advent Of Affordable Housing And The Fall Of 421A
New York City mayor Bill de Blasio has been an outspoken proponent of affordable housing, and he worked with the city and state governments to put an end to the 421a tax break. The first deadline for stopping the program was set for June 15, 2015, and the two weeks leading up to the deadline saw a strong increase in the number of building permits being issued by every borough. Prior to the deadline, it was lifted and negotiations started between the city and the state to continue the program.
When negotiations broke down, a second deadline for canceling the program was set for January 1, 2016, and the indication was that this deadline would stick. There was another flurry of building permits issued prior to January 1, 2016 and the program was finally declared null on January 15, 2016. The housing units that were already built under the program would continue to receive their tax breaks for many years to come, but there would be no new 421a tax breaks issued for any building projects in any of the five boroughs ever again.
The Impact Of The Program
In the month of December 2015, there were 299 new residential building projects approved for all five boroughs combined that resulted in 7,781 new units. In the month of January 2016, only 87 projects were approved for a total of 453 units throughout the entire city. That was a 94 percent drop in construction permits from December 2015 to January 2016.
By way of comparison, January 2015 had 1,500 new units approved for construction in all five boroughs combined. Since January is normally a slow month for construction, this number represents a strong construction industry. When compared to the 453 units approved in January 2016, it is easy to see how influential 421a was in inspiring developers to build housing in New York City.
For the past several years, there has been a sharp rise in construction throughout New York City. Boroughs, that had traditionally taken a back seat to Manhattan when it came to new housing development, suddenly pulled themselves to being almost on par with New York City’s most prosperous borough. At this stage city officials have to wonder if the end of 421a may make a significant and lasting negative impact on the construction momentum the city had enjoyed to this point, only time will tell.