News
A Tax Break Just for Luxury Housing? Don’t Believe It.
By Daniel M. Bernstein, Esq.
Published in the Daily News, May 25, 2011
Some of New York’s newest and most desirable residential buildings have a very important connection with more modest and affordable housing around the city – the 421-a partial real estate tax exemption. Thousands of affordable housing units have been created under the program, which was established in 1971 and expired last December.
With the four-decade-old program currently under consideration for reauthorization by the New York State Legislature, now is an appropriate time for New Yorkers to learn more about 421-a and to examine how effective it has been.
One fact is clear: New York City faces a significant shortage of affordable housing, the kind of homes that teachers, police officers, or firefighters could afford, in a neighborhood that feels safe and appropriate for raising a family. A recent study by the Community Service Society, for example, noted that rent regulations help make the city affordable for low and middle-income residents, and confirmed that the supply of rent-regulated apartments is dwindling.
The 421-a program alone cannot solve this problem, but it can help. In 2007, the program was changed to dramatically strengthen the link between creation of affordable housing and the receipt of 421-a benefits by market rate developments. Here’s how:
Currently, tax exemptions under the 421-a program for projects in all of Manhattan and in many other parts of New York City (the Geographic Exclusion Area or “GEA”) are linked to the construction of affordable housing, either at the same site or elsewhere in New York City. A new residential building in the GEA may be eligible to receive a 421-a tax exemption if 20 percent of its units are affordable housing, if it is receiving substantial governmental assistance pursuant to an affordable housing program, or if the developer builds affordable housing elsewhere in the city or pays another developer to do so. As of July 1, 2008, no development in the GEA can receive 421-a benefits without meeting the stated requirements.
The amount of real estate taxes that developers save under the 421-a tax exemption varies depending on the project, and is based on the increase in the assessed value of the property from pre-construction to completion of the project. Initially, developers can receive up to a 100 percent tax exemption on the increase in assessed value if 20 percent of the units are affordable on-site. If off-site units are being used to satisfy the affordability requirements, the 421-a exemption value is capped. Thereafter the exemption percentage decreases as the project’s 421-a exemption phases out and the project’s real estate taxes increase. During the 421-a benefit period, developers always pay real estate taxes on the property’s pre-construction assessed value.
There are many other benefits to the City from the 421-a program. The 421-a program has spurred the development of affordable housing that the City or State would not otherwise be able to finance. New York City also receives revenue through the program’s application fee of 0.4 percent of each project’s total cost. All of the rental housing that is built under 421-a is subject to rent stabilization.
Neighborhoods benefit from the 421-a program in two ways: first, it makes for more economically diverse neighborhoods, since the 20 percent of affordable units in the GEA can be in the same building as, or next door to, the 80 percent of market rate units; and second, current neighborhood residents receive priority to buy or rent 50 percent of the affordable units in the GEA.
At a time when the City and State are facing significant budget deficits, it is tempting to point to the 421-a program as a pure giveaway to the wealthy. In fact, some in New York have not been able to resist the temptation to talk about the tax breaks while barely mentioning the affordable housing benefit, or ignoring it altogether. But New Yorkers need to understand that the 421-a tax break is not granted simply for the creation of luxury housing, but for the affordable housing that is created along with it.
If the 421-a program is not extended, many developers will have to decide whether they can afford to charge low or moderate rents and still pay full property taxes. No one should be surprised if the expiration of the 421-a program prevents many new residential buildings from being built or leads developers to build more high-end housing. As a result, many buildings that under 421-a would have been subject to rent regulation and would have contained affordable housing, would be unaffordable to many New Yorkers.
Is the 421-a program the answer to New York City’s affordable housing shortage? No, not by itself. But 421-a is surely one of many programs that New York City needs to ensure that housing needs are met for all New Yorkers.
The author is a partner in the law firm Seiden & Schein, P.C
About Seiden & Schein, P.C.
Seiden & Schein, P.C. practices real estate law exclusively, in both affordable housing and in market rate housing. The firm has main practice areas in the areas of real estate tax benefit programs, inclusionary air rights and in condominium and co-op. law.
2011/2012 Tax Rates Issued.
The NYC Department of Finance (“DOF”) has issued property tax rates for the 2011/2012 Tax Year (which commences on July 1, 2011). We are available to discuss DOF matters generally. Please contact Daniel M. Bernstein at .(JavaScript must be enabled to view this email address) or Jay G. Seiden at .(JavaScript must be enabled to view this email address) for further information.
Assessed Value Allocation Problems On The Rise.
Recently, a number of Condominium Boards of Managers have noticed that DOF has not allocated Assessed Value (“AV”) among condominium units in accordance with each condominium unit’s percentage of interest in common elements. While this misallocation of AV often goes unnoticed during the initial years of Condominium operation, usually due to the presence of 421-a or J-51 real property tax benefits, as the real property tax benefit burns off, AV misallocation can result in significantly imbalanced tax bills for similar or identical condominium units. If you have questions about this issue, or about other issues relating to property tax bills, please contact Daniel M. Bernstein at .(JavaScript must be enabled to view this email address) or Adam A. Levenson at .(JavaScript must be enabled to view this email address).
Recent Changes To The Inclusionary Air Rights Program.
The Inclusionary Housing Program (the “IH Program”) of the New York City Department of Housing and Development (“HPD”) confers on developers (a “LH Developer”) of low-income housing transferrable development rights (called “Inclusionary Air Rights” or “IAR”) which may be used either on-site to enlarge a mixed-income project or off-site to enlarge a market rate project. Please note that IH Projects commencing on or after July 29, 2009 are subject to certain changes that have been made to the IH Program. Read Full Article >
Seiden & Schein Featured in “Real Estate Weekly”, April 2010
Real estate lawyer Jay Seiden (fifth left) of Seiden & Schein, PC, has decided to share his passion for jazz with young people throughout New York. Seiden, along with his law firm, his family and several clients - including Metropolitan Valuation Services, L&M Affordable Housing and Atlantic Development Group - are funding a series of live jazz performances through About the Swing, an organization founded by Seiden to bring great jazz music free to the public. The first set was held at PS 46, 2987 Eighth Avenue in Manhattan and featured the Mingus Dynasty Quartet. To find out more, contact: Jay Seiden, Esq. at 212-935-1400 or log onto www.abouttheswing.com.