On January 11, Mayor Bill de Blasio held a press conference in the Bedford-Stuyvesant section of Brooklyn to celebrate laying the groundwork to build or preserve 40,000 below-market rate apartments in his first two years of office—putting him on schedule to hit his goal of seeing 200,000 such units constructed or maintained by 2024.
At the time, Mr. de Blasio would not even consider the possibility that the 421a tax credit for developers, which incentivizes creation of affordable housing, might expire on January 15. Construction unions and the real estate industry had been locked in a stalemate for six months over new prevailing wage standards to be written into the abatement, ever since Gov. Andrew Cuomo and the State Legislature decided in June that the two sides would have to come to a deal on pay floors, or see the exemption wither away.
Vicki Been, commissioner of the City Department of Housing Preservation and Development, would admit that many of construction starts in 2015 were a result of real estate interests making a run on the bank before the break could disappear.
“We did certainly see a rise in building permits resulting undoubtedly from the desire to get in the ground before 421a,” she told reporters.
Sure enough, 421a expired. And the private housing market Mr. de Blasio has counted on to build his affordable apartments is in disarray.
Real estate industry leaders, including those who testified under oath at the trial of former State Senate Majority Leader Dean Skelos in December, have maintained that the tax credit is absolutely indispensable to their business model. Insiders the Observer spoke to believe new State Senate Majority Leader John Flanagan will carry a new version of 421a in his body of the legislature, and they anticipate that Mr. Cuomo would ultimately help fashion a new program at the end of the legislative session in June.
But that means the real estate market will go six months without the abatement, which will likely set back affordable housing construction, and thus make it harder for the mayor to hit his benchmarks for 2016. There is also a substantial chance that whatever program replaces 421a will include provisions mandating prevailing wages. Mr. de Blasio’s deputy mayor for housing, Alicia Glen, has argued such standards could result in as many as 17,000 middle-class and low-income apartments not getting built.
Like many things Mr. de Blasio has sought to influence—taxes on the wealthy, minimum wage, rent laws, the Metropolitan Transportation Authority—the decision-making on 421a will take place above his head, in Albany. But there is a major public resource the mayor controls almost unilaterally: the New York City Housing Authority.
NYCHA, like all public housing operators receiving federal funding, does have to comply with regulations that the Department of Housing and Urban Development sets in Washington, D.C. But Mr. de Blasio’s administration has testified before the Council that HUD usually permits the city to do what it deems necessary with the troubled authority.
It is with this permission that Mr. de Blasio intends to revitalize NYCHA through his “NextGeneration” plan. And at the heart of that plan is the creation of 17,000 new units of housing on the authority’s property, 13,500 of them going for below-market rates, which the administration has called a crucial part of its affordable housing plan’s proposal to construct 80,000 new affordable apartments citywide.
Most of the authority’s buildings went up between 1935 and 1960, and followed the “tower in the park” layout popular at the time—meaning that the developments often include large open spaces, which the mayor intends to “infill” with new construction. And at a recent Council hearing at the Upper East Side’s Isaac Houses-Holmes Towers, top NYCHA officials testified that they had the ability to make that private development viable without 421a.
First, it’s important to understand how 421a worked. When started during the economic doldrums of the 1970s, it allowed developers to avoid tax increases based on improvements to the property (i.e. new construction) during a three-year building period and for a decade-long interval afterward. As the market improved in the 80s, the state created a “geographic exclusion zone” between 14th and 96th streets in Manhattan where developers either had to price 20 percent of their units below-market, or to buy a certificate allowing them to build affordable apartments elsewhere.
The state continued to tinker with the GEA until it encompassed all Manhattan and burgeoning areas of the outer boroughs. It also increased incentives for affordable housing, letting developers enjoy the credit for an additional 10 years if they increased the number of below market units, with different standards for different parts of the city.
At the Council hearing last week, NYCHA and city representatives testified they could equal or exceed the benefits of 421a through two tools.
Because it is technically a private entity, for decades NYCHA shelled out a $30 million payment-in-lieu-of-property-taxes to the city on its 2,563 buildings. As part of the NextGen plan to stabilize the authority’s finances, Mr. de Blasio agreed to waive that payment. And NYCHA representatives at the hearing last week said they could pass along that waiver to new construction on authority property.
“NYCHA has an opportunity to pass through it’s tax exemption to new development,” NYCHA General Counsel David Farber testified. “We can determine that, if that is reasonably necessary to support the development project. We can do it. It is a question of will we do it, is it necessary to new development?”
And Leila Bozorg, chief of staff at HPD, said infill units for tenants earning less than 60 percent of the federally set area median income—roughly $46,600 for a family of three—could qualify for the state’s 420c tax credit. That exemption makes all such apartments, which make up half of those planned under NextGen, that are built by registered nonprofits “wholly exempt” from all local levies.
In fact, building affordable housing on NYCHA property might have an additional benefit: it may be cheaper than constructing on private property. Ms. Bozorg testified that HPD spends on average $65,000 to $70,000 in subsidies to create affordable housing, not including tax abatements, much of it to offset the cost of land.
The city told the Observer that it had no figures on how much it costs to subsidize a below-market apartment in an infill development.
Still, NYCHA Chairwoman Shola Olatoye testified at the Council hearing that her team would continue to base its models for development on the assumption Albany will resurrect 421a. And HPD told the Observer it had no plans to accelerate or expedite the infill process to compensate for the inevitable slowdown in development resulting from the loss, however temporary, of the abatement.
“Our position is we are supporting NYCHA fully in its NextGen NYCHA plan, and this is part of our affordable housing plan, and we are supportive of this with or without 421a,” David Quart, Deputy Commissioner of Strategy, Research and Communications for HPD, said.
So far, NYCHA has only publicly identified five of its developments—out of its 334 across the city—that it intends to build: three of which will host 100 percent affordable new housing, and two which will see 50/50 below-market and market rate housing.