Developocalypse: 421a expires
The deadline for a deal between developer and union reps has now passed
The 421a tax abatement program, which grants subsidies to developers who offer affordable units in new buildings, is officially done — for now.
The program’s future depended on negotiations between the Real Estate Board of New York and the Building and Construction Trades Council of Greater New York – a union group – over wage requirements for construction workers at 421a sites. Those talks did not lead to an agreement, Politico first reported, and the program is now set to expire at midnight.
John Banks, president of REBNY, bemoaned the breakdown of the talks.
“New York is a city of renters and one that continues to grow,” Banks said in a statement. “Without a program like 421-a, one can’t build multi-family rental housing with a significant below-market, or affordable, component on a scale necessary to address the City’s needs. We are committed to working with stakeholders to fashion a program that will produce the affordable housing throughout New York City that is so desperately needed, ensures construction workers are treated fairly and creates job opportunities for City residents.”
Jolie Milstein of the New York State Association for Affordable Housing, which represents affordable housing developers, said in a statement that the death of the program meant that “there is an even more urgent need for all stakeholders to work together and create a program to produce affordable rental housing for New York City.”
“There is no time to wait,” Milstein added.
While 421a is expiring for now, it is still possible that the two sides reach an agreement at a later date and the program gets extended after all. 421a briefly expired in June after lawmakers in Albany failed to reach an agreement over an extension, only to be renewed nine days later until Jan. 15, 2016.
“We remain ready to engage with all stakeholders in the weeks and months ahead to achieve our goals of creating needed affordable housing and middle class jobs for New Yorkers,” Gary LaBarbera, president of the Building and Construction Trades Council of Greater New York, said in a statement
The 421a program offers tax abatements to residential developers who set aside a portion of a building’s units as affordable. Its expiration is a major blow to residential developers, particularly in the outer boroughs. A recent report by NYU’s Furman Center found that in parts of Brooklyn and Queens where apartment rents are comparatively low, rental development would not be profitable without the tax abatement even if land prices were zero. In pricier parts of Brooklyn and Manhattan, the expiration could lead more developers to switch from rental to condo development, although it could also have the beneficial impact of pushing down land prices.
The expiration is also a blow to Mayor Bill de Blasio, whose pledge to create or preserve 200,000 affordable housing units depends in no small part on the 421a program. Many of the changes to the program that were passed — such as an expansion of the affordability component and the exclusion of condo projects from the program — were championed by City Hall.
Under the old program, first introduced in the 1970s, condo projects could qualify for the abatement. Extell Development’s luxury tower One57 famously benefitted from the program, costing the city $65.6 million in lost tax revenue. Some rental developments, such as Tishman Speyer’s latest Long Island City project on Jackson Avenue, could qualify for the program without setting aside any units as affordable.
New York’s state legislature approved a 421a extension in June 2015 with significant changes to the program, but Gov. Andrew Cuomo added a provision that REBNY and labor groups first reach an agreement over whether developers should be required to use union contractors to qualify for the abatement. These talks have collapsed — at least for now.
“If we all agree that we need to expand the supply of rental housing and that the over-assessment of rental housing creates economics that are simply not feasible, then I would hope we can count on Albany to support economic development,” said David Kramer, principal at development firm Hudson Companies. “Our company survived two exhausting, stressful nail biters to start foundations on two separate rental projects by June 15 and Dec. 31 respectively of this year, and it would be highly appreciated if Albany could provide a regulatory environment that offers some certainty and stability.”