Build Like Lazarus

Real estate and unions bring 421-a tax break back from the dead

Development East News
(Anthony Delanoix / Unsplash)
(Anthony Delanoix / Unsplash)

Union leaders and real estate power players have brokered a deal to revive an expired property tax break that many see as key to developing affordable housing in New York.

The two groups agreed on a multipart deal to revive 421-a, one of the largest property tax exemptions for rental housing in the city. In its expired version and its just-forged incarnation, 421-a gives developers tax breaks for constructing multi-unit buildings on vacant land in certain areas of the city.

The deal expired in January when the Real Estate Board of New York (REBNY), an industry association, and the Building and Construction Trades Council of Greater New York (BCTC), an organization of building trades unions, could not reach an agreement on wages. Real estate developers said they could not finance affordable housing projects and pay the wages unions demanded, while unions argued that wealthy developers could pay, but didn’t want to cut into profit margins. Unions also argued that their knowledge of workplace safety and skilled labor pool create job sites that are safer than non-union ones.

One major part of the new deal is that union construction workers on 421-a property tax exempt projects be paid an average of $60 per hour, benefits included, for new construction in Manhattan south of 96th Street with 300-plus rental units. A second component applies to buildings of the same size in Queens and Brooklyn Community Boards 2 and 1, an area that roughly includes Astoria, Long Island City, Greenpoint, Williamsburg, Brooklyn Heights, and Fort Greene, plus any eligible construction within one mile of the Brooklyn-Queens waterfront. On these 421-a eligible projects, construction workers would be paid $45 per hour, benefits included.

The third portion paves the way for opt-outs. Any 421-a project where more than 50 percent of rental units are reserved for below-market-rate households is exempt from wage agreements, and these affordable units would remain so for 40 years. The property tax exemptions on these sites would be active for 35 years, up from 20 under previous 421-a rules.

“We are pleased to have reached an agreement that will permit the production of new rental housing in New York City, including a substantial share of affordable units, while also ensuring good wages for construction workers,” REBNY chairperson Rob Speyer said in a prepared statement first shared by Politico.

The governor expressed measured approval, too. “The deal reached [last Thursday] between these parties provides more affordability for tenants and fairer wages for workers than under the original proposal,” Governor Andrew Cuomo said in a prepared statement. “While I would prefer even more affordability in the 421-a program, this agreement marks a major step forward for New Yorkers.”

The proposed deal would apply to a 421-a bill passed (but not signed into law) by the state legislature in June of last year. That agreement would apply citywide, and it includes provisions that developers must hire independent auditors to review payroll. Developers will not have to hire unionized workers as long as they enter into labor agreements voluntarily with unions.

If state legislators sign off on the REBNY and BCTC agreement, 421-a will be revived. Cuomo has indicated he will sign the changes into law in a special legislative session prior to the regular session that begins in January. Concurrently, the governor is urging lawmakers to sign a Memorandum of Understanding to release $2 billion in funds to build affordable housing for low- and middle-income households statewide. Right now, that money is entangled in other negotiations.

In New York City, Mayor de Blasio is still reviewing the proposal to see if it passes his administration’s standards. Politico points out that the deal that a similar he designed in association with REBNY last May was criticized by the governor.

For their part, affordable housing developers are not pleased by the deal between the powerful groups. “Adding an additional 10 years (to the) exemption, on top of (an) already grossly excessive 25-year proposed exemption, yields a tax break that is unprecedented and unjustifiable on any fiscal or programmatic grounds,” Benjamin Dulchin said in an email to Politico.”[It’s] unconscionable on its face.” Dulchin is the head of the Association for Neighborhood & Housing Development, a group that represents affordable housing developers.

Since 421-a expired, applications for residential construction have dropped precipitously, so affected industries are hoping its revival will spur new construction.

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