A city tax abatement program beloved by developers is getting an overhaul, and it’s not yet clear what that will mean for builders or municipal coffers, but it may already be impeding some new housing development.
A diverse group of city officials, non-profit and for-profit real estate developers, financers, advocates and intermediaries on the task force reevaluating the city’s 421a tax abatement program for new development remains largely mum on its debates. Few details about what its ultimate recommendations will be have emerged since the task force first met in early April.
But the uncertainty caused by the task force’s very formation, following Mayor Michael Bloomberg’s earlier announcement that he wanted to reevaluate the program intended to spur residential construction, may already be playing a part in scuttling new projects.
Steven Spinola, president of the Real Estate Board of New York and a member of the task force, said that with a deadline approaching, “We have builders who are questioning whether or not they can build a project because they don’t know if the program will be in existence next year.”
Neill Coleman, a spokesman for the Department of Housing Preservation and Development, said the plan is for the group to issue a report in the fall. The department is helping coordinate the task force.
The first meeting held in April, Coleman said, was “an introductory one,” but declined to elaborate on the substance of the meeting. “I would say that they have been presenting all of their arguments.”
Spinola said the task force’s initial talks have focused on reaching a rubric. “We’re not there yet as to what changes should be, but the meetings have been helpful in identifying the issues,” he said. “I think there’s a consensus that the 421a program law needs to be reviewed and analyzed now that the market has changed.”
If changes are made, they won’t kick in until the end of next year. The abatement program is set to expire at the end of 2007, whereupon the New York State Legislature may renew the program as usual, or this new one will take its place.
The group tackling the 421a consists of polarized interests and sharply differing views over the fate of the incentive, which was created in the 1970s but is now seen by critics as unnecessary in some neighborhoods because of the strength of the real estate market.
Carol Lamberg, executive director of Settlement Housing Fund, a non-profit developer that has created housing for low- and moderate-income New Yorkers since the 1960s, has a clear agenda.
“The goal from my point of view, and why I’m on the task force,” Lamberg said, “is to produce more affordable housing, and without killing the golden goose.”
The program — which allows buyers of 421a-funded housing to save thousands in monthly taxes for up to 25 years — does not apply in certain exemption zones in Manhattan: between 96th and 14th streets on the East Side and 96th to Houston streets on the West Side. It’s these boundaries that may be extended further, according to task force members.
Lamberg agreed one outcome of the task force might be “tweaking with the boundaries,” though she added, “It’s much too early to say.”
Shaun Donovan, commissioner of the city’s Department of Housing Preservation and Development and a task force member, told The Real Deal in a recent podcast, “We really need to step back and take a look at the 421a program and say, ‘In certain areas, it’s no longer needed just to spur market-rate construction.’ What we can do is make some changes to the program so we can maximize the amount of affordable housing we’re getting through the use of the 421a program.”
He suggested that Downtown Manhattan might no longer need the 421a incentive.
“Just to give you one example: Lower Manhattan has been one of the strongest areas for [housing] development over the last few years,” Donovan said. “And it’s an area where we think the market is probably strong enough to be able to sustain market-rate development without full 421a benefits.”
He also added that the 421a abatements would “absolutely not” disappear entirely.
Jonathan Rosen, a spokesman for the Association of Community Organizations for Reform Now (ACORN), which assisted with a recent Pratt Institute report on who has benefited from the 421a program, says that the New York City housing market is strong because of population growth, not tax abatements.
“Increased population will fuel demand for developers’ building,” Rosen said. “What we need to do is subsidize affordable housing.”
ACORN wants developers who are awarded a 421a package to be required to make 30 percent of their apartments affordable.
“We’re going to be working aggressively and hard to ensure that taxpayer money goes to building affordable housing rather than subsidizing millionaires,” he said. “Real estate developers do not deserve welfare handouts.”
But others in real estate said as the residential market slows while construction and land prices rise, it’s not the right moment to change the program.
“It’s not a good time to all of a sudden increase costs,” said Dick Connelly, a mortgage officer at the Community Preservation Corporation, which helps developers finance and build affordable multi-family housing. “The problem is everything relates to the land value. Because [developers] are paying that much for the land, they need the tax abatement for the unit to be marketable.”
Connelly looks back to the 1980s to guess what might happen whatever the task force decides in the future. When 421a was altered in the 1980s, under the Koch administration, it resulted in a construction frenzy, he said. Builders rushed to fill foundations before the deadline for the changes occurred.
This, Connelly said, helped contribute in part to the banking crisis in the early 1990s, and he warned that a similar phenomenon could take place this time around.
“It’s a fundamental piece of consideration for my members,” Spinola of REBNY said, “when they decide to build housing.”
Deciding the future of development incentives: Members of the city’s 421a task force
City Government*
Shaun Donovan, Dept. of Housing Preservation and Development
Mark Page, Office of Management and Budget
Josh Sirefman, Mayor’s Office
Martha Stark, Department of Finance
Development Community
Jeff Blau, The Related Companies
Chuck Brass, CPC Resources
Bernie Carr, NYS Assoc. for Affordable Housing
Ron Moelis, L & M Equity
Joel Pickett, Gotham Organization
Steven Spinola, REBNY
Alan Weiner, American Property Financing
Nonprofit Developers/Advocates
Frank Braconi, Citizens Housing and Planning Council
Carol Lamberg, Settlement Housing Fund
Brad Lander, Pratt Center for Community and Environ. Development
Lucille McEwen, Harlem Congregations for Community Improvement
Father Jim O’Shea, Churches United for Fair Housing
Adam Weinstein, Phipps Houses Group
Other
Naomi Bayer, Fannie Mae
Ingrid Ellen, New York University
Bill Frey, Enterprise Community Partners
Ken Lowenstein, Weil, Gotshal & Manges LLP
Preston Niblack, Independent Budget Office
Denise Scott, Local Initiatives Support Corporation
Mark Willis, JPMorgan Chase Community Dev. Group
(Source: NYC Dept. of Housing Preservation and Development; *City Council member slated to be part of task force not available as of press time)