Developers and construction unions say the new 421a tax abatement is necessary to build new apartments in New York City — but critics disagree.
“It’s extraordinarily expensive and it’s taken an inefficient program and made it more inefficient — some more affordable housing units, but mostly it’s just subsidizing developers,” said Benjamin Dulchin, executive director of the Association for Neighborhood and Housing Development.
But since Dulchin made that remark a few weeks ago, the negotiations have been further clarified so that the new 421-a, which would extend the tax abatement period by 10 years, would only apply to a small handful of buildings where workers are being paid a prevailing wage of $60/hour with benefits in Manhattan, south of 96th Street, and $45 an hour near the waterfront in Queens and Brooklyn. These units would have to provide five additional years of affordability for tenants.
Originally the new 421-a tax exemption would have applied to all existing residential developments, with more than 300 units, in the city in tax abatement zone. Dulchin and other critics said the additional 10 years would have resulted in more than $1 billion in foregone city taxes; but with the new prevailing wage mandate, much fewer developments will be able to qualify for the tax abatement so, although the Independent Budget Office won’t give a set number on the cost, the financial impact on the city will be much less.
There have been multiple issues negotiating the new 421-a. Initially the city was heading the negotiations, which was meant to spur construction of multi unit residential development on vacant land by abating property taxes for developers for 10 years. The abatement program started in the 1970s as a way to encourage developers to build residential units amid the city’s stifling property taxes.
But the renewal fell apart this January, when Mayor Bill de Blasio and Governor Andrew Cuomo — who have a contentious relationship– clashed over the labor costs. De Blasio argued that mandating union workers would rise the costs of building by $2.8 billion — putting a serious damper on his goal of constructing 80,000 new units of affordable housing by 2025 — part of his overall housing plan to create and preserve 200,000 units of affordable housing.
But Dulchin said renewing the 421-a was not necessary to build new market rate housing. According to a report done by the Furman Center, in the third quartile of 2016, New York City authorized 5,256 building permits– without the 421a tax abatement in place. This represents a growth of 150 percent up from the previous year and those permits were equally distributed in Manhattan and Brooklyn — with Queens getting 20 percent, the Bronx 15 percent and Staten Island 3 percent. Dulchin said this directly contradicted developers, who said that without the 421-a in place there would be no new development in the outer boroughs.
Mark Willis, senior policy fellow at the Furman Center said regardless of whether the 421a was necessary for building residentially, by agreeing to a prevailing wage developers had to give something up at the negotiating table.
“The negative to them is an increase in wage,” said Willis. “Negative to them is they have to maintain affordability for five more years. From the city’s point of view they gave up additional tax benefit and got in return five more years of affordability.”
As for the unions who were also at the table, by mandating a prevailing wage for the first time it might appear that they came out ahead during negotiations.
But Ed Ott, who teaches Labor Studies at the City University of New York’s Murphy Institute, says the negotiations were a mixed bag for those involved.
“It’s mixed opinion all around — if you’re a developer using non union getting anything that might change that you might not like it,” said Ott. Still, he added that the prevailing wage leveled the playing field and gave union workers a chance to show what they could do.
But although a higher prevailing wage could make it more competitive for unions it only accounted for larger buildings that are generally more likely to use union labor anyway. Also, at a time when affordable housing developments are likely to explode under de Blasio’s housing plan — the prevailing wage doesn’t account for those apartments that have 50 percent or more affordability. And that hard won prevailing wage can be nullified if a project labor agreement is negotiated directly with the union.
Willis said being able to negotiate the prevailing wage was actually a benefit for unions because it ensured that during slow construction periods unions laborers could stay competitive and that higher wages wouldn’t necessarily stop developers from construction and hiring workers.
The newly negotiated 421a will still have to go in front of the state legislature in December and signed into law by Governor Cuomo to be ratified. The passage of the 421-a unleashes $2 billion of state affordable housing funds.
Developers for Astoria Cove, a 1,723 development in Astoria Queens, that stalled after the 421-a’s expiration are waiting for the legislation to pass before deciding whether to continue construction.
“It is unlikely anyone will comment, especially as any agreement will have to be ratified by the legislature,” wrote Jason Fink, spokesperson for Alma Realty Corps, in an email. Click here to see a timeline for the 421-a.