Members of the New York Senate Democratic Caucus as well as leading housing advocates recently announced efforts to modernize the 421-a tax incentive program for new affordable housing construction. The series of changes would end the use of tax breaks as giveaways to luxury developers, making wider use of taxpayers' dollars. The current law is set to expire at the end of the year unless a new law is enacted by June 30.

“There are very real problems with 421-a, and it is vital that the legislature not just renew the program before it expires, but correct the mistakes existing in the current law,” said Senator Liz Krueger (pictured). “421-a comes at a real cost to the city—more than $400 million in lost revenue every year… Currently, the vast majority of these tax credits are going to luxury buildings in my district with little affordable housing being built anywhere. News flash: luxury housing developers do not need incentives to build on the Upper East Side.”

Section 421-a of the Real Property Law was enacted in 1971 to encourage developers to build new multifamily housing in New York City by granting them substantial property tax savings under 10- to 25-year plans. When the program was created, the city’s population was shrinking, and it was facing a fiscal crisis. At that time, 421-a was passed in order to ensure that the construction of new multifamily housing continued.

In the 1980’s, as the economy recovered and the real estate market rebounded, the law was adjusted to encourage the construction of affordable housing through the creation of geographic exclusive area (GEA), more commonly known as the “exclusion zone.” In order to receive tax benefits, developers of new buildings in this zone, roughly between 14th and 96th Streets, must now allocate 20 percent of its units as affordable housing or purchase “negotiable certificates” to fund off-site affordable housing. But elsewhere in New York City, developers continue to receive tax breaks for new developments without affordable housing components.

In preparation for the impending expiration of 421-a, Mayor Michael Bloomberg and the New York City Council passed legislation calling upon the state to continue the program with changes to the exclusion zone, elimination of the negotiable certificate program, a requirement that all affordable housing be built on-site, and creating a $400-million affordable housing fund.

The Senate Democrats further propose that:

1.) Developers throughout New York City receive a 421-a property tax break only if they include at least 30 percent of total units as affordable housing for low- and moderate-income families.

2.) “Affordable” be defined as families that earn no more than 80 percent of the median household income for the City of New York (approximately $35,000 for a household of 4).

3.) Preference for 50 percent of affordable units should go to existing residents within the local Community Board.

4.) The program should require that all affordable units be on-site, as part of the market-rate development, in order to create mixed-income communities.

5.) The affordable units should be made permanently affordable to prevent a future crisis when restrictions expire.

6.) Owners in buildings receiving property tax exemptions should be required to pay prevailing wages to their building service workers. New York City should not subsidize the payment of substandard wages to building service workers.

7.) The additional tax revenue generated from these changes should be placed in a dedicated New York City trust fund for affordable housing targeted at the 15 poorest community districts in the city.