Pratt Center for Community Development

Bloomberg Administration 421-a Task Force

On February 23, 2006, Mayor Michael R. Bloomberg announced the formation of a task force to examine the 421-a Program. Members of the real estate, affordable housing, advocacy, and nonprofit communities joined the Department of Housing Preservation and Development, the Office of Management and Budget, the Department of Finance, and Department of City Planning to evaluate the 421-a program and to realign it with today's real estate market, focusing on increasing incentives for the creation of affordable housing. Between April and October 2006, Task Force members met to examine potential policy options.

Rationale for Reform

421-a was initially established in an environment of declining property values and a dearth of development activity. The incentive was intended to stimulate new development during a period of slow housing production and declining population citywide. The market has continued to grow, with levels of housing production not seen for the past three decades, and 421-a benefits are no longer required to stimulate market rate development in certain neighborhoods.

The current market provides a historic opportunity not just to provide benefits where they are needed, but also to place greater emphasis on encouraging the development of affordable housing through the 421-a Program. However, the Task Force also recognizes that New York City continues to face a significant housing shortage. Therefore, changes to 421-a must be carefully calibrated to ensure housing production remains economically feasible throughout the City, particularly if the market weakens in the coming years.

Summary of Key Recommendations

• Expand the 421-a geographic exclusion area (GEA). The current exclusion zone, the area where developments are required to provide affordable housing in exchange for 421-a tax benefits, includes Manhattan from 14th Street to 96th Street and the Greenpoint-Williamsburg waterfront in Brooklyn. The expanded area would include neighborhoods with substantially high real estate values and significant zoning density: parts of Harlem, Lower Manhattan, DUMBO, Brooklyn Heights, and segments of the Brooklyn/Queens waterfront.

• Remove automatic extended (25-year) tax benefits from all-market-rate developments in designated "neighborhood preservation" areas: These developments would receive the standard fifteen-year 421-a tax benefits. Currently developments in neighborhoods such as Williamsburg in Brooklyn, Jackson Heights in Queens, Kingsbridge in the Bronx, Port Richmond in Staten Island and much of northern Manhattan can receive twenty-five years of benefits without providing affordable housing.

• Set a limit on the total amount of 421-a tax benefits that any all-market-rate unit may receive. Currently there is no limit on the amount of tax benefits that a project may receive (no matter what the rent or sales price). Under the Task Force proposal, on all-market-rate units outside of the exclusion zone, only the first $100,000 of an apartment's assessed value would receive the 421-a tax exemption. This equates roughly to a condominium sales price of $1 million (before the cap would kick in).

• Reserve 421-a tax benefits for projects with a minimum of six units. This is an increase from the current minimum of three units. Properties with fewer units are already tax advantaged because they are assessed at lower rates than are larger developments.

• Eliminate the "negotiable certificate" program, if a dedicated fund for affordable housing can be created. This program allows developers in the geographic exclusion area to receive 421-a benefits in return for purchasing certificates sold by developers of affordable housing outside the exclusion zone. Given the many inefficiencies inherent to the certificate program, the Task Force believes that the better option would be to eliminate the certificate program. Eliminating the certificate program would require market-rate developers in the GEA to pay full taxes unless providing affordable housing on-site, generating substantial new tax revenue. Because of a concern about the loss of revenue for affordable housing provided by the certificate program (whose funding is not subject to annual appropriations) the Task Force believes that elimination of the program is only appropriate if a fund for affordable housing can be established with adequate funding that is insulated from the appropriation process.

• Review methods and practices for assessing residential projects. Because of constraints imposed by New York State law, real property tax assessments can vary widely between different property types and locations, bringing uncertainty to the marketplace. Assessing properties in a more transparent and consistent way would be a significant and important benefit for the City, so the Administration will work closely with the housing and real estate communities to seek improvements.

Task Force's Conclusion

These policy proposals would significantly modify the existing 421-a Tax Exemption Program and 421-a Affordable Housing Program. The proposed changes would encourage the development of affordable housing and significantly increase tax revenues while minimizing any negative impact on the strong level of development throughout the City.

The Task Force agrees that the savings generated by the modification of the 421-a Program should be used to expand the City's affordable housing resources. When Mayor Bloomberg announced the formation of the Task Force, he committed $200 million in additional funding for the New Housing Marketplace Plan based on expected savings from the reform of the 421-a program. The Task Force believes the savings generated by the proposed changes to 421-a will significantly exceed $200 million. The bulk of the additional savings would result from the elimination of the Certificate Program; if this program were eliminated, the Task Force recommends that savings be replaced with a dedicated fund for affordable housing that, like revenue from the Certificate Program, would be insulated from the annual budget appropriations process.

In addition to increasing the City's tax base and boosting resources for affordable housing, these programmatic changes would produce substantial social benefits. By creating incentives to produce on-site affordable housing, the new program can improve economic integration within New York City through mixed income developments. By making more funds available to a wider set of affordable housing developers that are protected against economic volatility, more affordable housing can be produced with the same resources. Furthermore, the changes would limit tax incentives to primarily those properties that require benefits for economic feasibility. The Task Force believes that these six major recommendations, if implemented, would shape this tax benefit program to better reflect current and future market conditions throughout the City to the benefit of all New Yorkers.

Task Force Documents

• Full report of the Mayor's 421-a Task Force
• Proposed "exclusion zone" (area requiring affordable housing)

Analysis of the Recommendations

The Bloomberg Administration has rightly recognized the need to reform the 421-a property tax exemption program. For too long, this program has wasted hundreds of millions of taxpayer dollars, created very little affordable housing, over-subsidized luxury developments, and fueled gentrification.

However, the recommendations of the 421a task force do not go nearly far enough to fixing this broken program. The Task Force recommendations would continue to allow developers to receive a substantial tax break for all-market-rate development in most neighborhoods throughout the city (including Downtown Brooklyn, Park Slope, East Harlem, Forest Hills, Flushing, Williamsburg, Riverdale, etc) -- thus continuing to subsidize luxury development and gentrification in neighborhoods throughout the city. Task Force recommendations also fail to require any stronger affordability requirements, or to address the issue of long-term preservation of the affordable units.

Click here for a more detailed analysis of the Task Force recommendations