June 1, 2015
The 421a tax abatement will be a hot topic this month as its sunset date approaches and it faces possible renewal or change. After Bisnow asked readers what they thought should happen, Community Preservation Corp CEO Rafael Cestero and Cayuga Capital principal Jacob Sacks responded. Here’s what they have to say.
NYC Needs 421a But 421a Needs some work
By Rafael Cestero
New York City’s housing needs are drastically different from those of the 1970s when 421a launched, with our housing market experiencing unforeseen pressure. There’s no doubt the program can be modified to better meet the City’s needs today. The question is how it can best be reformed to encourage the production of rental and affordable housing.
Mayor de Blasio’s progressive 421a reform proposal will tip the scale toward rental production across the five boroughs and away from luxury condo projects, encouraging small building developers in the outer boroughs to create more rental units and affordable housing for all New Yorkers.
Additionally, the mayor’s reforms will ensure that all buildings using 421a include a significant percentage of long-term affordable housing.
However, requiring prevailing wage will simply stymie development and put a burden on the small neighborhood developers the program aims to incentivize.
421a must be maximized to encourage production and meet the need to keep New York City affordable.
421a Can Only Work if Developers Don’t Drop Out
by Jacob Sacks
Current proposed changes to the program are likely to make the economics of the 421a program so onerous that many developers may opt out of the program completely. The Rent Guidelines Board is signaling that for the near future it will cap rent growth for all stabilized units (and hence all 421a units, both the “market rate units” and the affordable units) at 1% per year or possibly even less, while free market residential rental rents are growing at 5% per year or more.
Combine this artificially low growth rate (which makes even the “market units” artificially below market within a few years) with a higher affordability ratio and prevailing wage requirements for both construction and operation of the building, and the 421a program doesn’t pencil out.
What will be the result? Lower residential rental construction overall (which means higher rents as supply does not keep pace with demand), and fewer affordable units as developers completely drop out of the program. Unless the program allows rents and rent growth that can support current land prices, it may end up working against its whole intended purpose. This would be bad for the city as we need to continue to attract young talented workers and house the middle class (and struggling) families already here.