Loss of tax break will deflate Gowanus, Soho rezonings, industry says

The popular tax abatement 421a is set to expire in three months

Gowanus & Soho (iStock, Gowanus Project)
Gowanus & Soho (iStock, Gowanus Project)

When officials signed off on an 82-block rezoning of Gowanus, they also created a path for developers to swiftly obtain approval for foundation work.

This is key for projects looking to qualify for 421a. The property tax break sunsets June 15, and developers must have foundation footings in place by then to receive it. Developers are very aware of this deadline: Just this week, at least four filed applications with City Planning for an intermediary certification that, if approved, will allow environmental remediation and foundation work to move forward.

Ordinarily, developers would need to go through a lengthier and more rigorous waterfront certification process before getting foundation permits. Those who qualify for the remediation certification will still need to go through that process to obtain additional building permits.

“We’ve been beating at their doors to move as quickly as possible,” said Paul Selver, co-chair of the land use department at the law firm Kramer Levin, which is working on waterfront certifications in the neighborhood.

Real estate professionals argue that without 421a — or a comparable replacement — the ambitions behind the recent rezonings in high-cost areas of Gowanus and Soho will not be realized. In other words, the thousands of affordable housing units that supporters of the rezonings predicted they would bring to the neighborhoods won’t get built. Developers would instead opt to go commercial or simply wait until a new incentive is put in place, they say.

“If it doesn’t come to pass, it seems very clear that rental housing is not viable,” said Mitch Korbey, chair of the law firm Herrick Feinstein’s land use and zoning group. “The idea that the market rate units cross-subsidize the affordable units and the incentive is not needed is completely wrong.”

Tenant advocates have called for the repeal of 421a, and have opposed Gov. Kathy Hochul’s proposal for a replacement program, 485w, saying it largely mirrors the soon-to-expire tax break.

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A report published by the Community Service Society last month determined that the tax break has cost the city $22.2 billion in forgone tax revenue over the last three decades but has failed to produce “a meaningful amount of truly affordable housing.”

On a recent panel hosted by NYU’s Furman Center, newly elected Comptroller Brad Lander — who shepherded the Gowanus rezoning through the city’s land use review process while on the City Council — called the high rents allowed by 421a “indefensible.”

The governor’s reworked proposal, Lander said, will likewise encourage developers to build condos in the outer boroughs, rather than rental housing. He also criticized 421a for driving up land prices.

“I wanted to get Gowanus done when people could still get 421a, but what that meant is that a huge amount of it just got paid to speculators and owners along the way who priced it into the value of the land,” he said. “I would rather require pricing affordability into land costs with something like a 10 percent requirement in hot-market neighborhoods.”

He suggested that the state allow 421a to expire and set a deadline for reforming the city’s property tax system. Lander did not respond to questions about the fate of the Gowanus rezoning.

The city’s Mandatory Inclusionary Housing program was designed to work alongside 421a. Without the latter, the Department of Housing Preservation and Development would need to exhaust its entire budget to subsidize affordable housing in Gowanus, said Basha ​​Gerhards, senior vice president of planning at the Real Estate Board of New York.

“It is very challenging to operate and construct multifamily housing,” she said.
“I believe it is irrational to yank a tax tool absent a replacement paradigm in place.”