Mayor Michael Bloomberg’s signing of an amendment to the city’s 35-year-old tax abatement program last month has developers concerned about the fate of new residential projects.
Many people conceded the 421-a tax abatement program needed an overhaul, but real estate professionals said they fear new condominium and rental development will be in jeopardy and that middle-income home buyers will be less likely to pull the trigger on home purchases as a result of the changes.
Under the new law, developers will have to include more affordable housing in their projects in order to get tax breaks, and developers eligible for the benefits will have to build the affordable housing on-site, rather than off-site in more peripheral neighborhoods.
Developers will also have a cap on tax breaks for market-rate units.
“I think people will not be building,” said Douglas Durst, co-president of the Durst Organization. “You’re not going to have housing construction, period. The changes are going to cause a decrease in the construction of both luxury or market rate, and affordable housing.”
The changes don’t go into effect until the end of 2007, when the abatement legislation sunsets.
Buyers in 421-a buildings have benefited from the incentive program with a monthly reduction of taxes, but critics claim the tax abatement has subsidized luxury condo construction in Manhattan and elsewhere — providing government assistance to projects that don’t need financial help to be viable or profitable.
A report by the Pratt Center for Community Development found that while the 421-a program did subsidize the building of more than 100,000 units since 1971, only 8 percent of them were actually affordable for low- and moderate-income residents.
In addition, the report said the program was a financial burden to the city, and that developers in prime Manhattan areas were receiving an inflated percentage of the value of the benefits while contributing a fraction of what they actually received in tax breaks for affordable housing.
The revised law expands the geographic exclusion area where projects are not eligible for 421-a unless they include affordable housing. The old exclusion area was from 14th to 96th streets in Manhattan, but it now includes almost all of the borough except a stretch in northern Manhattan; large parts of Brooklyn including Brooklyn Heights, Park Slope and Williamsburg; and along the East River waterfront in Queens.
The changes aim to increase affordable housing by granting developers up to 25 years of benefits if they build only affordable housing, compared to 15 year of benefits previously. The law also institutes a cap on the benefits that any market-rate unit may receive — $65,000 of the unit’s assessed value.
The city expects the new law to put an additional $400 million in its coffers for an affordable housing trust fund targeting the city’s 15 poorest areas.
Maria Rosenfeld, vice president of project management at the Moinian Group, said the impact would not be immediate since projects in the pipeline would not be affected. But, she said, eventually “It’s going to slow down condominium development. It’s going to make developers think twice.”
Because of the $65,000 cap, tax breaks will be reduced and carrying costs will go up for buyers, making condo units less affordable for middle-class buyers, Rosenfeld said.
The city hopes the new law will facilitate the construction of more affordable housing. The downside of the law is “it’s going to be more expensive for the buyers to buy,” said Ron Hershco, president of development company United Homes. The upside, he said, is that “in the long run it will create more affordable housing.”
Some developers argue that requiring the affordable housing to be on-site, rather than off in non-prime real estate areas, will affect builders’ bottom lines.
Developer David Picket, president of the Gotham Organization, said “abolishing the certificate program will increase the cost of development and, ultimately, result in a reduction in land values. This is particularly true with condo development where people were relying on the 421-a certificates.”
Neill Coleman, spokesman for the Department of Housing Preservation and Development, which administers the 421-a, said the law strikes a balance between creating affordable housing and providing development incentives.
Steven Spinola, president of the Real Estate Board of New York, was critical of the bill before it became law. He said while revision of the program was needed, the law would “result in less market rate and less affordable housing — not more. It will also cause the loss of millions in tax revenues for the city, and fewer jobs for New Yorkers.”