Which is more worthy of favorable tax treatment: a) Manhattan condos or b) Staten Island single-family homes?
The question isn’t just hypothetical; as June wound down, a tax incentive known as the 421b program, providing abatements on one- and two-family houses, was facing extinction. The program serves mainly Staten Island and Queens.
The rumblings of cement trucks, rushing to put in “beat-the-clock foundations,” have become a popular summer sound. City Council members indicated that the New York State Legislature was expected to let the tax abatement lapse when it came up for renewal on June 30.
“We don’t think that at this time the city should be providing a tax exemption to construct market-rate homes on privately-owned land,” said Shaun Donovan, the city’s commissioner of Housing Preservation and Development.
No decision had been made at press time.
The idea of sunsetting the 421b came from discussions within the Bloomberg administration, as well as from concerns from community groups and Council members, said HPD spokesman Neill Coleman.
Yet a similar program, the 421a, is going through an extensive review process. The 421a incentives are geared to multiple dwellings serving three families or more, leading 421b supporters to charge that the city is favoring condo dwellers at the expense of other homeowners. The nature of the city’s housing stock is also turning the dispute into a Manhattan/Brooklyn vs. Staten Island/Queens fight.
Both programs date from the 1970s.
Allen Cappelli, of the Staten Island-based Building Industry Association of New York City, says of regulators, “If they’re willing to study the 421a before making a decision, the same should go for the 421b. It should be a more thoughtful process.”
The proposed sunsetting, he said, is “letting millionaires buy their pieds-a-terre with a tax abatement, but disallowing it for a policeman.” R. Randy Lee, chairman of BIANYC, said, “the need for the [incentive] program is even greater than it ever was, with prices going higher and interest rates on the rise.”
Home prices have certainly risen, even if the market has slowed of late. Last year, the average price for a newly-constructed one-family home on Staten Island was around $363,000; this year it’s projected to be near $411,000, a 13 percent increase. Queens is expected to feel the same percent jump, though it has higher average prices, with newly-constructed one-families priced at around $412,000 last year and projected for $467,100 this year.
At those levels, a 421b benefit ranges from $15,000 to $25,000 spread over the eight-year period the exemption covers.
While that may not seem like much, Coleman estimates the exemption costs the city $28 million in lost revenue annually.
James Oddo, City Councilman from Staten Island, said the 421b program has “outlived its need.”
With battles over development going on in Staten Island, an argument can be made that the 421b is applied to higher-cost houses in areas already threatened by overdevelopment.
Mike Fazio, president of BIANYC, agreed that, “Do million-dollar homes get the abatement? Yes.” But he added that he believes that the 421b has overwhelmingly aided the middle-class. Fazio, a third-generation builder, is also president of Woodrow Estates. He said that he’s constructed at least 700 homes in the past 16 years — “what’s called workforce housing these days,” he noted. “I may have built one or two custom homes.”
A part of the 421b that has gotten lost in all the talk is that it also offers tax abatements for city residents who do extensive renovations and additions to their homes, “like raising a ranch into a two-story home with the addition of three bedrooms,” said Fazio.
Fazio said that there’s been very little outreach to organizations to let them know that the tax abatement sunsetting was imminent and contrasts this with the way HPD and legislators are progressing with the 421a — “there are going to be hearings and the result isn’t expected to be determined until next year.”
A city-organized task force is now reviewing the 421a abatements, more commonly used in Manhattan and Brooklyn, and is expected to issue a report in the fall. Lee said that the 421a program is utilized 78 percent in Manhattan and has annual costs per unit of as much as $100,000 to $160,000 on the high end.
How the 421b tax abatement works
R. Randy Lee, chairman of the Staten Island-based Building Industry Association of New York City, offered the following scenario: A typical $400,000 townhouse with a $24,000 down payment and a 30-year 6-percent $376,000 mortgage (though interest rates are closer to 7 percent now, he said), requires a qualifying family income of $104,500.
With no 421b, the annual family income would have to be $11,000 more per year, or $115,500.
A $770,000 detached two-family home, “which is now, after all the downzonings, the most typical product being built,” he notes, requires, with a $70,000 down payment and the same six-percent 30-year mortgage, an income of $190,500 to make the purchase. That income figure includes 50 percent of an assumed $800 a month rental income, though many lenders would credit 75 percent of rental income.
With no 421b, the same family would have to earn $212,500, or $22,500 more per year.