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Development
New York

Developers went on permit palooza before 421a expiration

Plans filed for more than 58K units in first half of 2022: City Planning data

(Getty)
(Getty)

Developers whipped themselves into a predictable frenzy in the first half of the year, eager to secure a vital tax break before its expiration.

The surge of filed permits accounted for more than 58,000 housing units, a record, according to data from the Department of City Planning. The City reported that’s roughly the same number of permits filed for all of 2015, the last time the 421a tax break expired.

Under the since-lapsed program, developers needed to build foundations by June 30 and embark on a course to complete construction within four years to qualify for the tax break. Property owners also needed to set aside 25 to 30 percent of units for affordable housing.

The property tax break expired in mid-June, though, and a replacement for the program remains out of reach. Proponents of a tax break hail it as a possible path to solve the city’s housing crunch, while opponents believe it is a giveaway for developers.

The tax break’s effect on multifamily developers cannot be overstated. A report by New York University’s Furman Center for Real Estate found a majority of multifamily units built between 2010 and 2020 were beneficiaries of 421a.

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The last time the tax break expired, developers rushed to file permits. After the expiration, filings plummeted and didn’t recover until the incentive was reinstated more than a year later.

To get the property tax abatement, projects need to be completed by June 15, 2026. Without a tax break in place and with interest rates on the rise, however, some projects will inevitably fall apart before tenants can move in.

Even the specter of 421a’s expiration cooled multifamily financing weeks before the tax break lapsed. Despite high demand for rental housing, developers struggled to land the necessary cash to work on the properties, hindered by additional factors like rising inflation and persistent supply chain issues.

Developers warned multifamily construction would come to a virtual standstill once 421a expired. The number of permits filed in the second half of the year are expected to confirm that warning.

— Holden Walter-Warner