Arrested Development: Residential construction permits dropped 94% in January

After December surge in approved construction, the DOB approved only 453 units last month

TRD New York /
Feb.February 19, 2016 08:00 AM

Following a rush in issued construction permits that qualified for the now-dead 421a tax break, only 453 units of housing were approved for construction in New York City by the Department of Buildings last month, according to The Real Deal’s analysis of publicly available data.

The January number is so paltry that it’s lower than the monthly average during the weakest year for permits during the financial crisis — in 2009, the average number of units approved per month would have been about 500, according to the annual Rent Guidelines Board housing supply report.

In January, there were just 87 non-hotel residential projects permitted citywide, with an average project size of just five units. According to the data, 69 of the 87 projects consisted of three or fewer units. Only eight of the approved projects had 10 or more proposed apartments, and just one had more than 100 apartments. That project was Monadnock Construction’s 530 Exterior Street in the Bronx, and it will not qualify for the expired 421a developer tax break. Staten Island had the most issued construction permits, largely for one and two-family homes. In Manhattan, just two permits were issued in January, for 25 total units of housing, and those projects won’t qualify either for 421a either.

421a, a tax incentive first passed by the New York State Assembly in the 1970s, provided developers with significant tax breaks to construct new residential buildings, often without providing any affordable housing. The tax break program was officially suspended when the Real Estate Board of New York and the Building and Construction Trades Council of Greater New York failed to agree on prevailing wage provisions required for its extension in January.

According to numbers from the U.S. Census Bureau cited by the Wall Street Journal, there were 7,781 units in 299 building projects approved before the expiration of 421a on December 31, meaning that the number of approved units dropped more than 94 percent in January. By comparison, January of 2015 saw more than 1,500 units approved, far above the 453 units this year.

Issued Construction Permits, January 2016
Total new building projectsTotal residential projectsTotal residential units
Queens 322049
Staten Island483860
Source: TRData analysis of DOB data for intitial new building permits. Does not count reissued permits or conversions. Residential projects and units do not include hotels.

With two major 421a expiration deadlines recently passed (in June and December), the Department of Buildings has churned out an unusually large number of building permits during the weeks and months directly preceding those deadlines.

During May and June of 2015, more than 26,000 total units of residential housing were included in issued construction permits, presumably so that as many projects as possible could qualify for tax breaks then set to expire on June 15, 2015. The first two weeks of June before the deadline saw more than 7,000 apartments approved for construction in Brooklyn alone, as TRD previously reported. The state-granted tax break was then extended for six months, and in December issued permits spiked once more, ahead of the foreboding last call for 421a on Dec. 31, 2015.

But it wasn’t just the new construction permits issued by the DOB that fell in January. The total number of units included new applications, which reached its lowest tally in at least a year, according to another TRD analysis of DOB data. Figures show 824 non-hotel residential units in projects of at least 15,000 square feet were proposed in new buildings and major conversion applications in January, and only 70 of those apartments were planned for Manhattan.

When asked about the recent fall in permit activity, real estate attorney Alvin Schein said that without 421a, a drop off was to be expected, especially for rentals. “Developers aren’t going forward with plans until there’s some type of tax exemption to make rentals feasible,” he said.

Schein’s comment is reminiscent of what virtually every developer says when asked about 421a –– that without it, no one will build rental housing, because there’s no incentive to discourage building condos in a market where they’re selling at record prices.

“There’s no question the loss of 421a will have an impact on development markets,” said Benjamin Dulchin, the executive director of affordable housing advocacy coalition ANHD. But the impact 421a has had on “juicing” land prices in certain neighborhoods, he added, must be acknowledged too. “Over the long term,” Dulchin said, “it’s likely that land prices in some neighborhoods will fall in a way that makes rental housing possible without 421a.”

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