Those concerned about the construction of new residential housing in New York should hope Gov. Andrew Cuomo makes good on his promise to resolve the long-running dispute about the new housing tax abatement known by its state law designation, 421-a. But those concerned about creating the most new housing per dollar of the tax exemption should go further than what the governor has proposed – and look back to a previous version of the law.
Earlier versions of the law allowed developers in Manhattan to build required below-market units in the outer boroughs, where land and construction are much cheaper. Lower costs meant shorter tax exemptions were still attractive to participants. The old off-site “certificate” program promised far less expensive 10-year partial tax exemptions. As we detailed in a 2015 report for the Manhattan Institute, the shorter off-site “certificate” exemptions – with caps on the benefit for luxury condos – would have given the most bang for the buck among the realistic reform options.
The proposal apparently endorsed by Cuomo has some serious drawbacks that lead to two key problems: higher-than-necessary costs for each new on-site apartment and fewer affordable units in exchange for a substantially more generous tax exemption compared to a previous version of the law. High on-site unit costs are exacerbated with this version’s extended 35-year exemption, ostensibly to fund new union wage requirements for large projects.
The broad reforms preferable to New York’s current housing and tax policy are too numerous to discuss. Even if the governor’s costly union bargain reflects the current political constraints on reform, there is still at least one small and realistic tweak worth making: copy the off-site affordable housing option from New York City’s Mandatory Inclusionary Housing law.
The city’s MIH law is intended to coordinate with the state’s 421-a law to provide 25-30 percent of rezoned new buildings with below-market units, with each program providing a similar menu of three compliance options for rental housing. MIH allows taller buildings to fit the extra affordable units without eliminating market-rate units, while 421-a helps fund the cross-subsidy.
But unlike the current draft of 421-a, MIH allows those affordable units to be located within one mile or within the community district in exchange for a 5 percentage point increase in affordable housing units. That’s not as flexible as the old 421-a off-site negotiable certificates, which had no distance restrictions, but even this watered-down off-site option can provide more units for the money. Developers can take advantage of slightly cheaper land and avoid costly fights over extra bulk and height inside historic districts.
Getting from 25 percent affordable to 30 percent affordable, or from 30 percent to 35 percent, for the same money may seem like a small efficiency for the off-site option. But almost one-third of Manhattan is covered by historic districts, whose constituents fight any increased height and bulk. Contextual zoning districts can also present a challenge in squeezing the affordable space on-site. It’s crucial to keep in mind that community opposition is blocking several of Mayor Bill de Blasio’s proposed affordable housing developments. Without the off-site safety valve, such affordable development could continue to be stymied. Accordingly, Cuomo should add the “1-mile or same community district” off-site option to accommodate rental projects eligible for both programs.
Improving the coordination of 421-a with MIH’s moderate off-site option does not represent any platonic ideal of housing policy – it’s just a small tweak to the complicated mess we’re working with. We continue to urge permanent comprehensive tax reform, as opposed to these temporary extensions of tax exemptions necessary to relieve the disproportionate tax on “Class 2” rental buildings.
We also deplore the use of even more public funds to help unionized construction workers – even as many less well-off New Yorkers pay the bill. The pros and cons of 421-a as a supply-side stimulant can be debated, but at least there’s a clear public purpose at stake – more than can be said for the union giveaway. Cuomo’s deal may be politically irreversible at this point, so the least he can do is make this small improvement by adding off-site compliance.
This piece originally appeared on City & State's New York Slant
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Howard Husock is the Vice President of Research and Publications at the Manhattan Institute. From 1987 through 2006, he was director of case studies in public policy and management at Harvard University’s Kennedy School of Government. Alex Armlovich is a fellow at the Manhattan Institute. Follow him on Twitter here.
This piece originally appeared in City & State's NY Slant