Photo: Jason Eppink/Flickr
The 421-a Tax Exemption is a partial tax exemption for developers who build residential properties that contain 20 percent affordable units or participate in the 421-a Affordable Housing Production Program. The property owner pays a partial tax on the property’s assessed value prior to any development for a period. Then, the full tax, which is based on the property’s new assessed value, is spread over an additional period. According to the NYU Furman Center, 98 percent of rental units in Manhattan received 421-a exemptions between 2011 and 2014.
New York State extended the existing program through the end of 2015 and created a new 421-a framework for 2016 onward. But the program could be in danger. To continue past December, real estate developers and construction labor unions must reach a “memorandum of understanding” on construction workers wages.
The NYU Furman Center, an urban policy researcher, released a report this month detailing the implications of not reaching this agreement by the end of the year. Here are some possible outcomes if the tax exemption is not renewed:
Supply for market-rate housing could be disrupted
The Furman Center predicts that not continuing with 421-a exemptions could lead to a “disruption in the supply of housing by market-rate builders.” Eliminating 421-a would “further reduce the relative attractiveness of developing new rental housing.” Although condo construction would likely be insulated, less rental housing would be expected.
Land prices could fall
Ending the the 421-a exemption would reduce the amount developers would pay for land — as their overall costs would increase. This could make property owners less likely to sell, in favor of waiting for the market to pick back up. The Furman Center notes that this would “[depress] residential development activity overall and [curtail] the supply of new housing.
Rental housing could become more expensive — and affordable housing would decrease
Predicting an increase in construction costs, the report notes that rental prices would likely increase as well without 421-a. The government would then increase other subsidies to cover the increased costs. That means that less affordable housing could be produced with current government resources.