With a whimper, not a shout, one of the most important elements of New York City housing policy has expired.
At least for now.
Talks among builders, unions and affordable-housing advocates on the terms of an extension of the 421a tax-break program couldn’t produce an agreement by Gov. Cuomo’s Jan. 15 deadline. This is no small matter for the de Blasio administration, which had seen the tax-reduction program as a way to get private developers to set aside housing at below-market prices — part of de Blasio’s push to build or preserve 200,000 "affordable" housing units.
The expiration of 421a presents an unusual and important opportunity to do something the city should have done long ago: review and revise its overall property-tax system.
The mayor also finds himself under pressure from Republicans in Albany to cap property taxes, as they’re capped in all other cities in the state — another potential body blow to the city’s ability to subsidize housing or otherwise continue the mayor’s big-spending ways.
But the expiration of 421a presents an unusual and important opportunity to do something the city should have done long ago: review and revise its overall property-tax system. Right now, that system’s complexity and punishingly high taxes for select new developments — and absurdly low taxes for other properties — are the reasons 421a tax breaks were necessary in the first place.
On the surface, it might seem risky for the city to jettison 421a, and affordable-housing advocates can be forgiven for hoping the impasse between developers and unions — which sought historically high wages for affordable-housing construction projects — is resolved. After all, since 1985, it’s fueled the building of 150,000 housing units, including some 37,000 formally affordable apartments.
The cost, however, has been high: The city forgives some $1.1 billion in property taxes a year on 421a buildings — sparking public outrage in some instances, such as that at the One57 luxury tower (although the program required the developers to provide support for affordable housing in The Bronx).
What critics may not be aware of, however, is that absent such tax breaks, property taxes on new residential development, especially in Manhattan, may be so high as to deter construction of all but the highest-end buildings.
The city’s property-tax system is a crazy quilt constructed with little obvious rationale. Commercial and utility properties pay relatively high rates.
Manhattan condominiums also pay relatively low taxes because they’re treated, for historical reasons, as if they were rent-stabilized units, which also pay low rates. The same is true for outer-borough homeowners.
Someone has to lose, however, and the biggest losers are the developers of new residential rental buildings.
Distortions created by the city’s property-tax system lead to disproportionately high taxes on new housing construction, leading to the push by developers for tax breaks — leading, in turn, to the sort of contentious political debates we’re seeing today.
Only tax abatements allow new residential developments to make economic sense. Remember: The benefits of this are felt citywide since construction of any kind helps make housing affordable by putting more on the market.
Think of it this way: The distortions created by the city’s property-tax system lead to disproportionately high taxes on new housing construction, leading to the push by developers for tax breaks — leading, in turn, to the sort of contentious political debates we’re seeing today.
Far better for state legislators, working with city officials, to reform the entire system, rather than carving out costly ways to develop a relatively small number of "affordable" units — likely to be developed only by those who can navigate the opaque system.
Albany has, surprisingly, given us a timeout on a controversial tax-abatement program — and put the idea of revisiting the city’s property-tax regime into play. State and city officials should take advantage of it to bring together a study group to recommend a new system — one that will make it easier for anyone to build in New York.