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421-a tax incentive program

The 421-a tax incentive program was created in 1971 to encourage housing development at a time when the housing market was weak. To spark residential development, the city started the 421-a program, which offered property tax exemptions to those willing to construct apartment buildings. In the mid-1980s, as the real estate market began heating up in certain neighborhoods, the city began to tweak the program. The focus shifted away from encouraging all development toward the need for affordable housing. In 1985 the city decided that in much of Manhattan – the so-called exclusion zone – developers would have to build a certain amount of affordable housing in order to qualify for the tax benefit. More recently, the zone was expanded to include areas in Manhattan between Houston Street and 96th Street, as well as the Greenpoint section of Brooklyn. Developers working inside the exclusion zone can meet the affordable housing requirement by either designating 20 percent of new projects as affordable housing, or by building a corresponding amount of affordable housing in other areas in the city. Outside the exclusion zone, any one building is still eligible for the original incentives, with no affordable housing requirement. Also, developers building in certain neighborhoods with historically dire housing problems – known as “neighborhood preservation” areas – qualify for extra incentives.

In December 2006, after weeks of negotiation, the City Council overwhelmingly approved a compromise measure that sought to balance the desire to update the program by eliminating unneeded incentives for "luxury" housing without stifling the construction boom. Under the compromise, the geographic exclusion zone was expanded to include several areas in Manhattan above 96th Street and all of Downtown Brooklyn, the neighborhoods of Carroll Gardens, Cobble Hill, Boerum Hill, Park Slope, most of Fort Greene, Prospect Heights, Williamsburg, Greenpoint, Sunset Park, Bushwick, and the waterfront from Red Hook to the waterfront of Long Island City, Queens. The bill also added an income cap to luxury housing developments seeking inclusion in the program.

Additional new provisions in the 421-a bill would grant 25 years of benefits only to developments that provide affordable housing, ensuring for the first time that 421-a provides an incentive for low-income housing throughout the city. In addition, the new program creates a $400 million Affordable Housing Trust Fund, targeted primarily to build in the 15 poorest neighborhoods in the city in areas outside the Geographic Exclusionary Zone. Some council members wanted an affordable housing requirement citywide, but the administration and Speaker Christine Quinn opposed that as too restrictive.

The State Legislature & Governor must approve any changes to the 421a program, as well as renew the program before it expires in December 2007. The Legislature passed 421a legislation at the end of their session in June 2007, however this legislation differed from the compromise bill worked out by the City Council and Mayor Bloomberg. Specifically, in Albany’s bills, the exclusion zone was increased, the Atlantic Yards development would receive the 421a tax break without having to build affordable housing, and government-supported middle-income housing was not made eligible for the program. Mayor Bloomberg had urged Governor Spitzer to veto that bill.

However, the confrontation is not likely to reach that point as the Mayor and Assemblyman Vito Lopez, Chair of the Assembly Housing Committee who spearheaded the State’s original bill, have reached a compromise. The terms, announced in early August 2007, allow for an expanded exclusion zone, ensure that government-supported middle-income housing will be eligible for the program, guarantee 35 years of affordability for subsidized units, and require the Atlantic Yards project to build affordable housing to qualify for the 421a program.

The Legislature is expected to take up this compromise legislation when it returns to Albany in September 2007.