Monday, April 24, 2017

Tag Archives: affordable housing

Albany Agrees to Resurrect the 421-a Tax Exemption

Albany Agrees to Resurrect the 421-a Tax Exemption

Taxpayers and Tenants Should be Disgusted

Albany has come to an agreement on that includes resurrecting the 421-a real estate tax exemption, with a vote on the full State budget expected today. There is no acceptable reason that everyone except luxury real estate developers should be expected to pay their taxes. Taxpayers and tenants should be disgusted.

We will need the $1.4 billion – and growing – that we spend each and every year on 421-a to fill the holes that will be left in the local budget by Trump’s federal budget cuts for essential services. 421-a does little to actually create affordable housing, with 79 cents of every 421-a dollar spent going to luxury development, and only 11 cents going to support affordability. A growing body of evidence suggests that the 421-a exemption doesn’t even accomplish the most minimal public purpose of incentivizing new market-rate development.

Resurrecting 421-a is also a body blow to tenants because changes in the law, for the first time, include the interests of the construction trade unions, which severely limit the ability of tenant-friendly legislators to use the program as leverage to defend or strengthen rent regulation against and anti-tenant legislators. Rent regulation is New York City’s most effective affordable housing and community-stability preservation program, which is now left far more vulnerable. This is especially true because under the new agreement, 421-a expires in 2022 and rent regulation expires in 2019, stripping tenants of essential leverage.

What is the New 421-a Program?

The new 421-a program, now titled “The Affordable New York Housing Program,” is essentially an expanded and amended version of the expired June 2015 421-a exemption that passed the legislature, but with modifications intended to resolve the conflict created from a trade union wage provision that was inserted at the last minute. This subsequently led to legal complications and suspension of the exemption.

The new 421-a program does not improve the affordable housing requirements passed by the legislature in June 2015, but it does add significant cost to the taxpayer.

The June 2015 version was citywide and would have been used by almost all new residential development projects over 6 units, allowing developers affordability Options A, B, C, and D. (See image below for an explanation of the options) The new program adds Options E, F, and G and requires developers to pay higher construction wage levels. The new Options E, F, and G also extend the length of the tax exemption to an unprecedented 35-year, 100% exemption. This is a major increase in the lifetime value of the exemption to the developer and a major increase in the cost to the New York City taxpayer.

The program currently costs taxpayers $1.4 billion a year – and growing – and the NYC Independent Budget Office have estimated that the changes to the new program will add significant additional cost.

The proposed new REBNY program is citywide, and would widely be used across most neighborhoods. Development of new buildings with 300+ rental units will be required to participate in the program in some areas and eligible to participate in all other areas of the City. The new program is exceptionally generous to the developer, and most will take advantage of this financially generous opportunity.

And the increase in cost won’t just come after year two of the extended tax exemption; it will come immediately. Developers will find the enhanced benefit irresistible since it allows them to not pay taxes for an additional ten years. We will see a rush of developers applying for the new 421-a program and see developments from the last 1.5 years retroactively being granted 421-a, at a great cost to taxpayers.

No additional affordable units, or deeper level of affordability will be generated by the REBNY proposal, and the increase in the length of affordability is minor. The primary beneficiaries will be market-rate and luxury real estate developers, who will have their already substantial public subsidy increased by an estimated 22.5% in each new building. A fraction of the increased value given to the developer will be passed along in the form of higher wages for the short-term construction labor.

How Do the New “Options” Work?

  • Option E is allowed within any of the Enhanced Affordability Areas, and requires 10% of the apartments be affordable at 40% of Area Median Income (AMI), 10% at 60% of AMI, and 5% at 120% AMI. The average hourly construction wage must be $60. Additional public subsidy is not allowed.
  • Option F is allowed within any of the Enhanced Affordability Areas, and requires 10% of the apartments be available at 60% of AMI, and 20% at 130% AMI. The average hourly construction wage must be $60 an hour. Additional public subsidy is allowed.
  • Option G is allowed only within the Brooklyn and Queens Enhanced Affordability Areas, and requires that 30% of the new housing is affordable at 130% of AMI. The average hourly construction wage must be $45 an hour. Additional public subsidy is not allowed.
  • Any building with 300+ rental units outside of the Enhanced Affordability Areas can opt-into Option G, which, given the extraordinary value of the 35-year 100% abatement to the developer, is the most likely outcome.

A New Model and a Step Forward for Mission-Driven Developers

A New Model and a Step Forward for Mission-Driven Developers:

JOE NYC Moves into High Gear

Earlier this month, the ambitious new collaboration called the Joint Ownership Entity (JOE NYC) announced the acquisition of a 43-building, 248-unit portfolio of at-risk affordable housing in Brooklyn. This signifies another important step forward for neighborhood-based housing groups. The purchase was done by the well-respected local not-for-profit developer St. Nicks Alliance and was backed by the shared scale and financial resources that is the hallmark of the JOE model.

This acquisition represents a rare example of a not-for-profit organization acquiring an at-risk portfolio owned by a for-profit organization. This type of model ensures that the buildings remain affordable and benefit the community over the long term.

ANHD congratulates St. Nicks Alliance and JOE NYC on this notable step forward.

ANHD congratulates St. Nicks Alliance and JOE NYC on this notable step forward.

Mission-driven developers – including Community Development Corporations (CDCs) – have been key assets for the New York City affordable housing development infrastructure for decades. But under Mayor Bloomberg, the City shifted towards policies that favored for-profit developers, a shift that Mayor de Blasio did not correct. This fact, combined with a more expensive and competitive development environment, has created challenges for mission-driven developers.

JOE NYC is an ambitious answer to this challenge. Mission-driven developers bring essential benefits to their local neighborhoods, including permanently affordable housing, deeper affordability, essential social services funded by the “profits” of the buildings, and stronger neighborhood civic infrastructures. These are community benefits that only mission-driven developers bring.

Launched in spring 2016, JOE NYC was founded by a group of CDCs to expand their capacity to build and preserve affordable housing in their communities. JOE NYC expects to take ownership of over 3,000 affordable housing units across New York City in the next year. CDCs that participate in the collective JOE NYC model have a seat on the organization’s board and share in the financial benefit and increased economies of scale that have a direct, positive impact on their local communities.

JOE NYC strengthens the capacity of asset and property management across its portfolio by giving participating CDCs the opportunity to benefit from shared efficiencies and JOE’s balance sheet. And, JOE NYC will serve as a guarantor for CDCs, which will allow its members to secure financing in future development projects.

The recent St. Nicks Alliance acquisition is a key step forward. 43-building cluster was at-risk because it was reaching the end of the 15-year low-income-housing tax credit compliance period, putting all 248 units at risk for losing their affordability. With a $5.3 million loan from the Local Initiatives Support Corporation (LISC), $1.24 million dollars in equity coming from JOE NYC, and over $900,000 from St. Nicks, these units are now guaranteed to remain a safe, stable, decent, affordable resource for the local community.

Understanding REBNY’s New 421-a Tax Exemption Proposal

Understanding REBNY’s New 421-a Tax Exemption Proposal

What does it do? What does it cost?

In January 2017, a revised 421-a Tax Exemption, rebranded and given the title “The Affordable New York Housing Program,” was introduced and inserted into the proposed FY18 New York State budget. This version of the 421-a Tax Exemption is essentially an expanded and amended version of the expired June 2015 exemption that passed the legislature but with modifications intended to resolve the conflict created from a trade union wage provision that was inserted at the last minute, which subsequently led to legal complications and suspension of the exemption.

 

What is REBNY’s Proposal?   

REBNY’s proposed 421-a program does not improve or change any of the affordable housing requirements passed by the legislature in June 2015.

The June 2015 version was citywide and would have been used by almost all new residential development projects over 6 units, allowing developers affordability Options A, B, C, and D. (See image below for an explanation of the Options) The new REBNY proposal adds Options E, F, and G and requires developers to pay higher construction wage levels. The new Options E, F, and G also extend the length of the tax exemption to an unprecedented 35-year, 100% exemption. This is a major increase in the lifetime value of the exemption to the developer and a major increase in the cost to the New York City taxpayer.

The proposed new REBNY program is citywide, and would be widely used across most neighborhoods. Development of new buildings with 300+ rental units will be required to participate in the program in some areas, and eligible to participate in all other areas of the City. The new program is exceptionally generous to the developer, and most will take advantage of this financially generous opportunity.

What is the Cost of the REBNY Proposal?

The NYC Independent Budget Office recently reported that the current “421-a remains the city’s largest tax expenditure at $1.4 billion this fiscal year.”

New York City’s Department of Housing Preservation and Development (HPD) has stated that the REBNY’s proposed changes will increase the overall cost of the program by yet another 22% on top of the billion-plus dollars we are already spending on the program every year.

And the increase in cost won’t just come after year two of the extended tax exemption; it will come immediately. Developers will find the enhanced benefit irresistible since it allows them to not pay taxes for an additional ten years. We will see a rush of developers applying for REBNY’s 421-a program and see developments from the last 1.5 years retroactively being granted 421-a, costing tax payers an estimated additional $820 million in the first ten years, according to HPD.

 

Is 421-a an Affordable Housing Program?

Although the current 421-a Tax Exemption includes some requirements for affordable housing, it cannot be accurately described as an affordable housing program. It was designed in the 1970s to incentivize the creation of private, market-rate, and luxury housing at a time when the City economy was stagnant. The affordability benefits were a minor, late add-on the program. In fact, a 2014 analysis of the annual cost by ANHD shows that the exemption cost the City over $1.1 billion in lost tax revenue and covered 152,402 residential units, but only 12,700 of those units were affordable. That’s $11 of affordable housing benefit taken for every $100 given away to subsidize luxury development. That’s not an affordable housing program.

 

Who Will Benefit from the REBNY Proposal?

No additional affordable units, or deeper level of affordability will be generated by the REBNY proposal, and the increase in the length of affordability is minor. The primary beneficiaries will be market-rate and luxury real estate developers, who will have their already substantial public subsidy increased by an estimated 22.5% in each new building. A fraction of the increased value that is given to the developer will be passed along in the form of higher wages for the short-term construction labor, but this will be a minor amount.

Additional beneficiaries of the REBNY proposal will be landlords and politicians who oppose rent stabilization laws. The New York State Assembly, which tends to support rent stabilization laws, has often used the threat of not renewing 421-a as leverage to prevent the weakening of rent stabilization laws by the New York State Senate, which tends to support the 421-a Exemption. Since this version of 421-a included a higher construction wage for the first time, the Assembly – which tends to also be pro-organized labor –will find it far more difficult to use the threat of not renewing 421-a as leverage.

 

How Do the New “Options” Work?

  • Option E is allowed within any of the Enhanced Affordability Areas, and requires 10% of the apartments be affordable at 40% of Area Median Income (AMI), 10% at 60% of AMI, and 5% at 120% AMI. The average hourly construction wage must be $60. Additional public subsidy is not allowed.
  • Option F is allowed within any of the Enhanced Affordability Areas, and requires 10% of the apartments be available at 60% of AMI, and 20% at 130% AMI. The average hourly construction wage must be $60 an hour. Additional public subsidy is allowed.
  • Option G is allowed only within the Brooklyn and Queens Enhanced Affordability Areas, and requires that 30% of the new housing is affordable at 130% of AMI. The average hourly construction wage must be $45 an hour. Additional public subsidy is not allowed.
  • Any building with 300+ rental units outside of the Enhanced Affordability Areas can opt-into Option G, which, given the extraordinary value of the 35-year 100% abatement to the developer, is the most likely outcome.

 

 

Albany 421a Deal May Mortgage NYC’s Future for Bigger REBNY Tax Break

Albany 421a Deal May Mortgage NYC’s Future for Bigger REBNY Tax Break

New Evidence Suggests that the Exemption May Not Have Any Public Benefit

The controversial 421a tax exemption for developers – now popularly known as the Trump Tax Break – is back in the news with reports of a possible pre-Election Day deal that would mortgage New York City’s budget for decades to come.

As a recent article in Politico New York reports, decision-makers are not only conferring to bring the 421a Trump Tax Break back, but they are also considering making the tax break even more costly by extending the term of the exemption. This would give private developers up to 45 years of paying no property taxes – 10 years longer than the law that expired in January and 20 years on top of an earlier version – all at the expense of New York City taxpayers.

This would give private developers up to 45 years of paying no property taxes – 10 years longer than the law that expired in January and 20 years on top of an earlier version – all at the expense of New York City taxpayers.

The new 421a proposal is unconscionable on its face. Our NYC classrooms need supplies and 21st technology; our roads, bridges, and mass transit need investment and repair; and our nurses and firefighters need paychecks.

With at least a $3 Billion City budget deficit by 2019 just around the corner, we cannot afford to mortgage our City’s fiscal future in exchange for a tax break for private developers to create primarily market-rate housing. It is unconscionable that the ability of New York City to pay for essential government services for its citizens for the next 45 years might be mortgaged away and handed over to REBNY as a pawn in the negotiations between the real estate lobby and the building trade unions to revive the 421a Trump Tax Break.

With at least a $3 Billion City budget deficit by 2019 just around the corner, we cannot afford to mortgage our City’s fiscal future in exchange for a tax break for private developers to create primarily market-rate housing.

The cost of the 421a Trump Tax Break to our City is dramatic and increasingly indefensible. A 2015 analysis of the exemption by ANHD shows that in fiscal year 2013-14, the 421a program covered a total of 152,402 residential units, and granted $1.1 billion in tax abatements. But, only 12,748 of those units had affordability restrictions. That translates very roughly to about $86,000 a year that taxpayers are transferring to private developers to subsidize each affordable unit, making 421a tax break by far the most inefficient affordable housing program on the books.

This 421a Trump Tax Break deal will hand a hefty portion of the City’s tax base over to REBNY. The fact that these negotiations are happening under the shadow of Election Day coverage and between the real estate industry, the build trades, and without any conversation on rent regulation or with affordable housing stakeholders make it all the egregious.

And evidence is mounting that the 421a Trump Tax Break may not even accomplish the most minimum public purpose.

Last week, a data update released by the NYU Furman Center titled, “NYC New Building Permits Recovered to 2014 Levels in the Third Quarter [of 2016], Despite 421a Suspension,” notes that not only have the number of new construction permits returned to normal levels, but the number of units per building has also returned to normal levels – growing from an average of 26 units per building in the Bronx in the 1st quarter of 2016 to 39 units per building in the 3rd quarter. This suggests that the surge in new rental developments without 421a is not limited to small-scale, one-off development sites.

As ANHD’s previous blog examining 421a noted, “There is one thing the real estate lobby has asserted unequivocally [in order to justify the existence of the tax exemption]: ‘It was not feasible to build rental housing in New York City without the 421a subsidies.’… However, new trends suggest this may not be correct. In the past few months, there has been increasing evidence of new market-rate rental private construction in exactly the types of low-cost housing markets where the real estate lobby insisted would never happen.”

But new data indicates that new construction has adjusted to a housing market without 421a Trump Tax Break and is quickly recovering, and that the existence of 421a itself may have been hindering development in key markets.

But new data indicates that new construction has adjusted to a housing market without 421a Trump Tax Break and is quickly recovering, and that the existence of 421a itself may have been hindering development in key markets.

The general consensus of housing researchers and experts has been that the broad availability of the 421a Trump Tax Break has the effect of artificially inflating land prices, thereby increasing the cost of new housing development. One possible outcome of the suspension of 421a is that land prices in relatively weak real estate markets – where new privately-built housing will be more naturally affordable – would soften without the artificial stimulant of the tax exemption, with the effect of making new housing development in those neighborhoods more affordable.

This position was made in a 2015 NYU Furman Center report hypothesizing that “the loss of the 421a exemption would reduce the amount that residential developers would be willing to pay for the land.” The report continued, “In the medium and long term, as landowners adjust their expectations of the value of development parcels downward, or as market rents rise, the pace of development could resume.”

Further evidence from a New York City Development Update through the 2nd quarter of 2016, released by the investment firm NGKF Capital Markets, shows that the trend of increasing price per square foot for development sites in some key areas has slowed dramatically since 421a was suspended:

  • In Manhattan above 96th Street, the average price per buildable square foot for development sites rose by 71% from 2014-2015, but only rose by 6% from 2015 through the first half of 2016.
  • In the Bronx, the average price per buildable square foot for development sites rose by 24% from 2014-2015, but only rose by 2% from 2015 through the first half of 2016.

Together, this new data suggests that the suspension of 421a has softened land prices, which makes new development more economical even without 421a. The fact that new development is now more robust in these neighborhoods suggests that, as the return of 421a is debated, policy makers should examine what policy goal 421a actually accomplishes and whether the cost to the taxpayer is worth it.

Evidence is growing that we should be moving away from any 421a Trump Tax Break. Our City’s housing market is booming without it. Giving REBNY an unnecessary and unreasonably lucrative tax break at the expense of the tax paying public is unconscionable.

Giving REBNY an unnecessary and unreasonably lucrative tax break at the expense of the tax paying public is unconscionable.