Reforming NYC's 421-a Property Tax Exemption Program:
Subsidize Affordable Homes, Not Luxury Development
The Pratt Center has played a pivotal role in pushing for the 421-a tax program--which cost New York City $400 million in 2006--to produce much more housing that is affordable to low and moderate-income New Yorkers. The Center worked closely with ACORN, Habitat for Humanity, Housing Here and Now, Queens for Affordable Housing and others to campaign for reform.
The program, known as "421-a" (Section 421a of the NYS Private Housing Finance Law) was created in the 1970s, when the city was hungry for any new development, at a time of fiscal crisis and neighborhood abandonment. It provides developers with a 10 or 15 year property tax exemption for developing new housing. The program was amended in the 1980s, so that developers roughly between 14th and 96th Streets (the "exclusion zone") would have to contribute to affordable housing in order to receive a tax break. But as the City's fortunes have changed in recent years and real estate development has skyrocketed in every borough, the once-needed incentive has become a giveaway of hundreds of millions of dollars for all-market-rate developments, from the hottest Manhattan neighborhoods (which eat up the vast majority of the dollars) to gentrifying communities around the city.
In response to the calls for change, the Bloomberg Administration established a task force that explored potential reforms. The recommendations of that task force prompted the City Council in late 2006 to extend the zone where affordable housing is required in order to get a tax break, eliminate the inefficient off-site program, and make other crucial reforms to the program. Today, the exclusion zone covers only 96th streets to 14th/Houston Streets in Manhattan; elsewhere, builders receive the benefit but have no obligation to produce any units below market rate.
A bill passed by the state Senate and Assembly in June 2007 expanded the potential impact of 421-a even further. It would extend to all of Manhattan and significant new areas of the outer boroughs the "exclusion zone" in which developers who receive the tax break are obligated to provide affordable housing (see map 
).
Under the new measure, which would go into effect in July 2008 if signed by the governor, 20 percent of the new units produced in buildings within the broader exclusion zone must be affordable to households earning less than 60 percent of New York's area median income, or $42,540 for a family of four (lowered from $56,000 in the City's proposal). The housing must remain affordable for 40 years (up from the current 20), and employees of buildings benefiting from the tax break must be paid a prevailing wage, as set by the city.
At the end of the 2007 legislative session, those reforms, and the 421-a program itself, were in jeopardy. The new rules would not go into effect until July 1, 2008, giving developers another year to take advantage of tax breaks with no obligation to provide affordable housing. Thanks to special provisions in the legislation, the developer Forest City Ratner will get tax breaks worth at least $170 million (and possibly twice that much) on condo buildings in Atlantic Yards that will provide no affordable housing, while builders who can claim environmental remediation, litigation or other obstacles can also receive exemptions from the requirements.
The entire 421-a program is set to expire on December 31, 2007. It is now up to Governor Eliot Spitzer to either approve the program's renewal as passed by the legislature, and with it the exemptions for major developers, or to veto it, leaving uncertainty about the future of this tool for producing affordable housing.
The Pratt Center will continue to advocate for strong affordable housing requirements for developers who receive this tax break, or any government subsidies for development.
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