Developers Beware: 421-A Overhaul Coming

A: Mayor Bloomberg signed legislation a few days before the new year that reforms the 421-A property tax exemption program offered to developers as an incentive to stimulate building. The changes basically expand the area for the program, extend tax benefits to 25 years for developers who promote affordable housing, set limits on benefits any market rate unit can receive, and the creation of an affordable housing trust fund.

Details on this new legislation could be found at NYC.gov website.

Here are the details of the changes to the 421-A benefits program that will affect developers:

Expand the Geographic Exclusionary Area to include all of Manhattan, south of 136th Street in West Harlem, south of 126th Street in Central Harlem, south of 117th Street in East Harlem; all of Downtown Brooklyn, Carroll Gardens, Cobble Hill, Boerum Hill, Park Slope, most of Fort Greene, Prospect Heights, Williamsburg and Greenpoint, and into Sunset Park and Bushwick; and along the waterfront from Red Hook north to Astoria in Queens.

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.

Set a limit on the total amount of 421-a tax benefits that any market rate unit may receive. Only the first $65,000 of an apartment's assessed value would receive the 421-a tax exemption.

Abolish the existing negotiable certificates program and create an Affordable Housing Trust Fund. This $400 million fund, targeted primarily to the 15 poorest neighborhoods in the City, would be used to finance the development and rehabilitation of affordable housing in areas outside of the Geographic Exclusionary Areas.

Basically the program changes focused on benefits to stimulate more affordable housing, something that developers probably didn't want to hear. It's almost as if the government recognized the changing housing market in NYC and wanted to limit development a bit to control the number of new development luxury units that eventually will hit the open market. These changes seem to do that; unless I'm interpreting this wrong in which case I hope someone will mention why.

One aspect of the program also seems restricting, which is:

Only the first $65,000 of an apartment's assessed value would receive the 421-a tax exemption

Does this mean that future tax abatements for new developments under these changes will NOT give buyers of new developments the fuill tax incentives that they got used to in past years? If a property is assessed at $750,000, than that means $685,000 of the full property value will be normally taxed, and $65,000 will be abated? Again, am I wrong in this interpretation?

According to METRO article:

"This bill doesn’t go far enough," Avella said. "We're pushing it back and forth, making some tweaks but not addressing the two major problems: Building affordable housing and eliminating this huge windfall for developers. Why should we give tax breaks to developers of luxury and market-rate housing anywhere in the city?"

Thoughts please!! I have a feeling I am interpreting this wrong in terms of ultimate benefits for developing

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