421-a tax exemption

There was a concern in the 1970s that residential housing construction was declining as people moved from New York City to the suburbs.[7] In response to this trend, the state passed the original 421-a tax exemption program in 1971, with the goal of encouraging the construction of more residential housing in the city.[8] The 421-a tax exemption program kept property taxes on the developer steady during and for a period of time after construction. The goal of doing so was to decrease the large tax burden an increased valuation of the property would create for the developer, which would then encourage residential housing creation in the process.[9]

The original 421-a program detailed a tax exempt period of three years or the construction period, whichever is shorter. During this period, the builder paid zero property taxes. Afterwards, a ten-year exemption period began, in which builders were exempt from the increase in taxes for two years, followed by a 20% decrease in the tax exemption every two years (80% exempt in year three, 60% exempt in year five, etc.) This would last until after the tenth year, in which the builder would begin paying the full property taxes mandated for the total value of the property. All builders of multi-family housing outside of the Geographic Exclusion Area (GEA) had a right to this deduction. This version of the exemption remained in place before the addition of affordable housing requirements in the 1980s.[7]

Under the initial program, 421-a applied to all dwellings with at least ten housing units. The above exemption applied to the value of the housing improvements. The original 421-a program also required that rents in buildings receiving the tax exemption be at least 15% less than the rents of comparable units nearby. 421-a housing units were also subject to all local rent stabilization laws that were passed for a period of ten years or however long the rent stabilization laws lasted, whichever period was shorter.[1]

In 1976, the state legislature passed amendments preventing the Department of Housing Preservation and Development (HPD) from rescinding certificates of eligibility for any projects started on or after July 1, 1976. In 1977, the program was extended for an additional four years. Then, in 1978, the requirement that privately owned buildings contain at least six dwelling units was removed. Three years later, non-condominiums under the program were made subject to rent stabilization laws, a change from when non-condominiums were only temporary subjected to those same laws. The 1981 amendments also allowed the HPD to restrict access to the program for areas that did not need the tax incentives or should be used for non-residential purposes. In 1983, certain cities in the state were permitted to limit, restrict, or condition 421-a benefits. In the 1983 revision, the also state rescinded 421-a tax benefits for multi-family dwellings that were converted from non-residential use.[1]

In 1984, the state mandated that rents for buildings built after January 1, 1974 be stabilized until May 15, 1985. Also, the state mandated that the New York City Board of Estimate review all local restrictions on 421-a benefits for approval. Additionally, the state passed laws that officially restricted benefits for projects in Manhattan: Areas in Manhattan eligible for the exemption were reduced, and previously non-commercial sites now had to be underutilized for three years prior to construction to become eligible for the 421-a tax exemption program.[1]

As a follow-up to earlier legislation, in 1985 the eligibility of projects in the restricted area for 421-a tax benefits was restricted to projects that either received financial help from any level of government or had 20% of their housing units be certified by the HPD to be affordable.[1][10] The restricted area at that time was in Manhattan, roughly bounded by 14th Street to the south and 96th Street to the north. Outside of the excluded zone area, projects had an "as-of-right" exemption of between ten and fifteen years.[10] In addition, the 1985 legislation allowed for a 25-year exemption period if the project took place in a neighborhood preservation area, was in an area eligible for mortgage insurance made available by the rehabilitation mortgage insurance corporation, or received funding under the Neighborhood Reinvestment Corporation Act. The 421-a program was further extended the same year, and the definition of "construction period" was defined to be three years or less.[1]

One57, a luxury condominium on 57th Street, received 421-a tax benefits under the old program.[11]

Starting in 2006, the Geographic Exclusion Area (GEA) was expanded to include other parts of New York City outside of Manhattan. The 421-a tax exemption affects the entire city, but the requirement for affordable housing only affects construction projects in the GEA.[10] Generally, these areas are located where housing prices are the most expensive and where affordable housing is most needed. The entire GEA is in New York City. Under the current program, all of Manhattan is part of the GEA. In addition, the Queens and Brooklyn waterfronts are part of the GEA as well, along with parts of northern Staten Island, a small area in central Queens, and a small portion of the Bronx.[12] The GEA boundaries are established by both state and local laws.[13]

Under the 2006 version of the program, several rules applied. For the part of the GEA in Manhattan south of 110th Street, the owner had to provide affordable housing in order to get any 421-a tax benefits. For such projects, a ten-year tax exemption could be obtained through building affordable units offsite, via a "negotiable certificate" from the city's Department of Housing Preservation and Development. However, a 20-year tax benefit could only be obtained by building affordable units on-site. In the rest of the GEA, certificates meant a 15-year exemption and on-site affordable units meant a 25-year exemption. Outside of the GEA, negotiable certificates were prohibited. A 15-year exemption was always allowed for any construction project, with a 25-year exemption being permitted if affordable housing units were built in the apartment building.[6]

In June 2015, the state government agreed to renew the 421-a tax exemption program, extending it for another four years. The state increased the affordability requirement from 20% to 25-30%. However, the state extended the program conditionally.[4] Specifically, the state set a requirement that workers and developers come to an agreement on whether workers on 421-a construction projects would be paid union-level wages, something that developers stated would increase construction costs drastically. The city's Independent Budget Office estimated that the union-level wages requirement would increase the cost of Mayor Bill de Blasio's affordable housing plan by $2.8 billion. The extension of the program was void if such an agreement on union-level wages was not reached by January 15, 2016. Advocates of not renewing the program claimed that the program unfairly benefited real estate developers at the expense of the New York City taxpayer; the funds for the program essentially came from the New York City government.[14] Because an agreement was not reached by the deadline, the 421-a program expired in New York on January 15, 2016.[2]

However, debate over how much the program helped to develop affordable housing in the city continued. Mayor Bill de Blasio and New York Governor Andrew Cuomo, along with other advocacy groups, worried that the loss of the tax break would make affordable housing too expensive to build in the city, and that the city would have to pay more to build such units.[15] From when Mayor de Blasio took office in January 2014 to the expiration of the program in January 2016, developers received financing for 13,929 affordable units, of which 5,006 utilized the 421-a exemption program.[15] In response to this issue, Governor Cuomo brought both union leaders and real estate executives together to create a deal on paying union-level wages on 421-a projects. At the conclusion of negotiations, unions and real estate developers reached an agreement to pay workers $60/hr on covered projects in Manhattan and $45/hr on covered projects within a mile of the East River waterfront in Queens and Brooklyn. As such, the bill was submitted to the state legislature for approval.[11] The program was officially revived with the passage of New York State's $153.1 billion budget in April 2017.[16]

In June 2019, Cuomo signed the Housing Stability and Tenant Protection Act of 2019 (HSTPA) into law, protecting additional tenant rights across New York state.[17][18] According to The New York Times, the HSTPA "mark[s] a turning point" for the millions of New Yorkers living in rent-stabilized apartments "after a steady erosion of protections and the loss of tens of thousands of regulated apartments."[19] While tenant groups cheered the bill's passage,[20][21] landlord groups worried that some of its provisions would undermine their ability to build and maintain apartment buildings.[22] Following the passage of the act, some housing advocates called for the repeal of the 421-a tax exemption.[23]