In Opposition to 421-a Real Estate Tax Abatement Rule Change
The Pratt Center is here to testify today in opposition to HPD’s proposed extension of 421-a eligibility from 36 months to 72 months for projects initiated prior to the 2007-08 extension of the 421-a exclusion zone.
By expanding the exclusion zone, in which affordable housing is required as a condition of the tax abatement, the City Council and State Legislature clearly intended to spur the creation of affordable housing alongside market-rate development in neighborhoods that had become -- and remain -- highly attractive for real estate development. The legislature passed its measure in mid -2007 and proceeded to give developers until mid-2008 to get foundations in the ground without having to include affordable housing as a condition of receiving the tax abatement within the expanded exclusion zone. Since then, projects begun prior to June 2008 have had three years to come to completion and claim the tax benefit under the old rules. Now HPD is talking about changing the rules at the very end of the game, and calling it halftime.
We understand the urgency of sustaining housing development in a challenging real estate market, and the difficulties many developers have had in securing financing for projects that once appeared viable. But in the current budget climate, as the city moves to lay off teachers, scale back pensions, and cut back vital services, it’s unconscionable to put significant sums of public funds in support of private market activity that serves the highest-income New Yorkers but not those who have unmet housing needs.
A review of a small sample of projects initiated following the state legislature’s approval of the widened exclusion zone illustrates the extremely high cost of taxpayer subsidy under 421-a. In the MetroTech area in Brooklyn, four condominium projects totaling 692 units of housing will receive $64.4 million in abatements over the next 15 years, while producing no units of affordable housing. That is a per-unit subsidy of $93,000.
The average apartment sales price in the Oro, in Downtown Brooklyn, was $573,000. The average tax break will be $114,000. In effect, buyers of this luxury housing will receive a 20 percent discount at taxpayer expense. Residents have access to a swimming pool, basketball court, screening room, and party lounge.
Giveaways of taxpayer money for luxury housing is not the solution to the problem of stalled real estate development sites. The 7,000-plus units identified by the Real Estate Board of New York as potential beneficiaries of a three-year extension of the pre-2008 rules would come at a price of hundreds of millions of dollars. It is terrible public policy to spend those funds to subsidize market-rate housing. There are more effective and less costly ways to ensure that stalled development sites move forward, and ultimately the solutions must come from the credit and bond markets, not local taxpayer giveaways.
If the public is going to pay, yet again, to correct the market miscalculations of banks and real estate developers, then public benefits—here, affordable housing—must also be part of the bargain.