Housing focus (photo: Ed Reed/Mayoral Photography Office)

Affordable housing construction in New York has declined significantly in the last few years in the wake of COVID-19 through a combination of factors including higher interest rates, inflation and supply chain instability resulting from the overall disruption of the pandemic. But a key factor that real estate developers, city and state government officials, and many housing advocates cite is the expiration of the state’s 421-a property tax exemption for the construction of affordable housing as part of larger rental housing developments. With no replacement in sight as the State Legislature’s 2023 session nears its early June end, they say the city’s affordable housing goals will remain far out of reach.

In fact, very little new rental housing is being constructed in New York City overall, whether it includes affordable, rent-restricted units or not. Mayor Eric Adams and other city officials are sounding the alarm, and asking the Legislature to act on some housing development policies before they break for the rest of the year as of June 8.

While Governor Kathy Hochul attempted to pass a sweeping plan to mandate and boost new housing production in the state budget, the Legislature did not agree to the program, known as the New York Housing Compact. It included several New York City-focused planks, like both designing a replacement for the expired 421-a program and an extension of the time period for which 421-a eligible projects would be allowed to receive the tax break — which is necessary, proponents say, in order to ensure tens of thousands of units in the pipeline are indeed built.

As New York City faces dire overlapping crises of affordability, homelessness, and housing supply, the numbers are indeed alarming.

In the 2022 New York City fiscal year, which ended July 1 of this year, construction began on only 16,428 units of affordable housing, down from ​​29,388 in the previous year and from 30,311 the year before that, according to the Preliminary Mayor’s Management Report. The report also covered the first four months of the 2023 fiscal year, from July through October, and showed 2,359 units added to the pipeline in that time.

Even before these recent declines, New York City was not coming close to keeping up with demand for new housing. The city grew by about 630,000 residents between the 2010 and 2020 Census, adding nearly a million jobs in that time but only about 294,000 housing units between 2011 and 2021. There are more than 2.27 million rental units in the city, a number that has only grown by about 100,000 since 2011.

In 2021, about 53% of renter households — just under 1 million households — were rent-burdened, paying more than 30% of their income towards rent, according to the city’s latest housing survey, while 32%, or nearly 600,000 households, were severely rent-burdened, paying more than half their income to rent (the analysis doesn’t include residents of public housing or those who used housing vouchers).

The decline in new construction has continued and, in monthly reports on construction and foundation permit applications for multi-family residential buildings, the Real Estate Board of New York has regularly raised the flag about the city’s housing production landscape. In its latest report from May 18, REBNY pointed out a continuing “trend of negligible filings” for foundation permits, which began to decline after the state’s 421-a tax credit expired in June of last year.

In advance of that expiration, permits had surged. “In the first six months of the year [2022] there were 440 filings for 31,750 units. After the expiration of 421a in June, only 186 filings, accounting for 12,005 units followed,” the report notes.

Without 421-a, experts say that there will be far fewer rental housing units being built, including very little affordable housing, and nowhere near enough to meet Mayor Adams’ “moonshot” goal of building 500,000 new units over ten years.

“A tax benefit here is critical for mixed-income, multifamily development in New York City,” said Dan Garodnick, director of the Department of City Planning. “It's how we get affordable housing in higher income areas.”

The 421-a incentive encourages developers to add income-restricted units to housing that is built as-of-right, which requires no rezoning approvals or other subsidies from the city. But it also underpins the city’s Mandatory Inclusionary Housing (MIH) policy, a progressive victory under Mayor Bill de Blasio and the City Council in 2016 that is triggered when developers seek upzoning approvals from the city for new and expanded housing. MIH requires that with such rezonings, certain percentages of the overall units must be rent-restricted at certain income levels — and without use of precious city affordable housing subsidies.

“This is an important program that gets us affordable housing in its own right and also enables the success of our mandatory affordable housing programs, and without it, we will have significant challenges to get the units that we need,” Garodnick said.

In neighborhoods with higher real estate prices, developers and other experts say that the 421-a tax benefit is essential to make up for revenue lost to income-restricted units, which is also covered via the higher rents charged in the market-rate units. In other parts of the city, there are often challenges, they say, in getting affordable housing built without additional city subsidies.

Mandatory Inclusionary Housing was also applied by the past administration in broad neighborhood rezonings, several of which are being pursued by the Adams administration as well, along with initiatives to speed up private developer applications. The administration is also moving ahead with three citywide zoning text amendments, including one most focused on housing growth that the Department of City Planning is expected to unveil and begin the approval process for in 2024.

Garodnick expects to see a “significant dropoff” on already declining housing permit applications if the State Legislature fails to act on 421-a. “There is broad recognition of the problem here,” he said. “The mayor has set forward to define it. He has charged us with putting out ambitious targets and plans to achieve them. And we need the tools to be able to effectuate them and those tools, in many cases, live in the State Capitol.”

On Tuesday, officials from the Adams administration joined lawmakers, labor and civil rights leaders, and housing advocates to call on the Legislature for the passage of measures to address the urgent housing crisis and, by extension, the burgeoning migrant asylum-seeker crisis. “We are in a perfect storm of housing crises that threatens to devastate the people of our city and state unless immediate action is taken this year,” said Deputy Mayor for Economic and Workforce Development Maria Torres-Springer, in a statement. A former city housing commissioner, Torres-Springer is adding housing to her portfolio with the departure of Adams’ chief housing officer, Jessica Katz — both were among the city leaders in Albany on Tuesday. “We cannot wait another year for legislators to come back to Albany,” Torres-Springer added. “We must pass this common-sense agenda now so that we have the tools to build and prosper.”

But, the Legislature does not seem poised to create a 421-a replacement any time soon, and may not even agree to the extension that Hochul proposed for already-permitted projects.

Last year, Governor Hochul proposed replacing 421-a with a new 485-w program with modifications, including deeper affordability requirements. But she later withdrew the proposal in the wake of opposition from the Legislature. Ahead of this year’s state budget battle, she punted the issue of replacing 421-a to lawmakers while proposing, at minimum, a four-year extension of the deadline for building completions to receive 421-a benefits from 2026 to 2030. The Legislature, however, rejected both as almost all housing policies were ultimately excised from the budget deal.

In an interview in early May on Gotham Gazette’s Max Politics podcast, Basha Gerhards, REBNY’s senior vice president of planning, said it is “wishful thinking” to wait for the housing market to adjust to the absence of 421–a, considering the time and effort involved in building development. “This is not a process that starts up very quickly or overnight and you do need public policy interventions or public policy support to make sure that that pipeline continues,” she said.

In lieu of a replacement program, developers and construction union leaders say that the Legislature should at least approve a stopgap measure by extending the 421-a deadline in the few remaining weeks of the post-budget legislative session. REBNY has estimated that without that measure, about 33,000 apartments will not be built.

“This is the reality of the market and housing is not being built in communities that need housing because of the Legislature's failure to act on it, to be quite honest,” said Carlo Scissura, President & CEO of the New York Building Congress, in an interview. Without the deadline being extended, Scissura and others say that projects that would have otherwise been built, will be abandoned.

“COVID changed everything. Inflation changed everything. Interest rates are through the roof. Money is not as easy to get anymore…You add all these things and then you don't have a new 421-a program, you just get to the point where you say, ‘Sadly, we are going to be way behind other cities in the U.S. and the world on building much-needed housing,’” he said.

Howard Slatkin, executive director of the nonprofit policy group Citizens Housing and Planning Council, pointed out that as-of-right buildings that have already begun construction could be completed before 2030 but without the 421-a program. “That housing is all going to be market-rate. All those affordable units just go ‘poof,’ which is really a terrible outcome” said Slatkin, recently a top official at the Department of City Planning.

For buildings where Mandatory Inclusionary Housing is required, without 421-a developers will either be stuck or have to seek some other type of relief to make their projects successful, Slatkin said. “Without the tax exemption. It's not clear how they would ever be able to afford to complete those buildings,” he said.

“If the Legislature can enable the units that have started to complete…it's kind of like well, they've stored a few nuts for the winter,” he continued. “But if those buildings can't complete, then it's a double-whammy, because there's nothing new in the pipeline to replace it. The squirrel doesn't have any nuts stored for the winter and we might not make it through that winter.”

The tax exemption also ensures that buildings can otherwise be entirely privately financed, which means that public dollars set aside for affordable housing subsidies don’t have to be used. “It's additive to all the other stuff the city builds,” Slatkin said, referring to ways in which the city’s housing agencies fund affordable housing development.

As Michelle de la Uz of the Fifth Avenue Committee and Rachel Fee of the New York Housing Conference (NYHC) noted in a recent op-ed for City Limits, the expiration of the 421-a program threatens to undermine the development of new mixed-income rental housing across the city, including in areas of the city rezoned to spur such development. They pointed to the particular example of Gowanus, Brooklyn, where a massive rezoning was approved by the city in November 2021.

The Gowanus plan, more than a decade in the making, “would, in many ways, be for naught without the Legislature taking action to extend the 421-a completion deadline before June 8. Now is not the time, after years of community discussion and a lengthy public review, to throw up yet another roadblock,” they wrote.

On Wednesday, NYHC released a policy brief pointing out that in the 2022 calendar year, New York City produced ​​only 14,766 units of affordable housing, including both new construction and preservation, which was 48% lower than the 28,366 units produced on average over the previous five years. “Inaction in Albany will mean a decline in affordable housing production in NYC,” said Fee, NYCH’s executive director, in a statement. “Without tax incentives for rental housing, affordable housing will only be built in low-income communities and high-income neighborhoods will be off the hook to produce any affordable housing.”

The 421-a replacement was just one of many programs that the governor, mayor, and others had advocated for in the lead up to the state budget, stressing the urgency of the housing crisis. Among other measures that would have been particularly helpful for the city was a proposed replacement for the J-51 tax credit for building renovations in exchange for conversions to affordable housing, lifting the city’s floor-area ratio (FAR) cap, and establishing a regulatory structure for easier conversions of office buildings to housing and for basement and cellar apartments. None were included in the budget, but they are the specific items on the city’s wish-list for the end of the legislative session.

“We are in a crisis that could have been eased by the Legislature and unfortunately, we're back to where we were a year ago or two years ago and nothing is moving,” said Scissura.

In a news conference on Wednesday in Albany, Senate Majority Leader Andrea Stewart-Cousins said that the 421-a deadline extension is part of the ongoing debate in the remaining days of the session.

“We’ve always, and continue to be very, very focused on housing and affordable housing…It's a matter of trying to do a number of things, not just one,” she said, noting that the Legislature is also pursuing tenant protection bills that the governor has opposed. “Certainly, the 421-a extension would always be part of a broader conversation,” she added.

“I think that part of the challenge is that there’s things that developers want, I think there’s things that tenants want. I think it’s difficult,” Assembly Speaker Carl Heastie told reporters on Wednesday about the potential for a 421-a deadline extension. “These things are all kind of connected. I don’t know if it’s going to be easy to pull off.”

Spokespeople for Senate housing chair Brian Kavanagh and Assembly housing chair Linda Rosenthal did not respond to requests for comment.

The 421-a program has proved to be controversial and significant opposition to renewing it has grown in the last few years, particularly among progressive lawmakers and housing activists. As New York City Comptroller Brad Lander pointed out in a March 2022 report, the program cost the city about $1.77 billion in foregone revenue and created income-restricted apartments that were largely unaffordable to most New Yorkers — numbers that led to Hochul’s proposed revision, which some said was still not enough. Instead of replacing the flawed program, Lander said the state should reform the city’s inequitable property tax system, therefore obviating the need for another tax credit.

“With the expiration of 421-a, we have a once-in-a-generation opportunity to build a fair and affordable property tax system that eliminates disparities between homeowners in different neighborhoods, facilitates new rental housing development, and focuses scarce public subsidies on genuinely affordable housing,” Lander, a Democrat, said in a statement in June 2022.

A year later, after the expiration of 421-a, there has been no movement on broader property tax reform and housing construction has slowed to a crawl.

“The housing crisis facing New York will not be solved with a silver bullet,” Lander said in a new statement on Wednesday. “We need to better target housing subsidies to affordability, increase supply of housing for all incomes, reform our inequitable property tax system, and protect tenants from displacement. Simply renewing 421a without addressing the issues of affordability will not successfully meet the housing needs of New Yorkers.”

Others say that while holistic solutions are needed, at the very least 421-a should be extended for existing projects and replaced to help spur new ones.

“The property tax system in New York City is broken, inequitable, regressive, and frankly, idiotic. And everyone knows that but no one's willing to fix it,” said Andrew Fine, policy director of Open New York, a pro-housing-growth advocacy group. But, in the absence of any reforms to that system, “we do need 421-a to get housing built, and particularly affordable housing in high-cost areas where agencies like [the city Department of Housing Preservation and Development] and [the state Division of Housing and Community Renewal] are unlikely to fund affordable housing.”

“421-a has been an important bandaid on the broken system for decades, and it should be tweaked and fixed over time. But most importantly, the property tax system as a whole needs to be fixed,” he added.

Even those who have criticized 421-a believe that some sort of replacement or other tax credit may be necessary. “We as a city and as a state, we're giving away all of these funds in the form of a tax expenditure, but we're not getting enough in return in order to address the housing crisis, especially for those who are feeling the pain the most,” said City Council Member Pierina Sanchez, a Bronx Democrat who chairs the Council’s Committee on Housing and Buildings. She pointed out that building applications surged and then dipped in a similar manner when 421-a was previously allowed to expire in 2015 and only replaced in 2017.

Sanchez is not opposed to a new program but insists that it needs to come with deeper affordability levels and income restrictions that will be accessible to low-income New Yorkers. “I think that's the bottom line,” she said. In the meantime, she said the Adams administration should be more creative with the resources at its disposal and put more capital dollars towards housing development — an area where the mayor has not lived up to his campaign promises.

Cea Weaver, co-founder of the Housing Justice for All advocacy coalition that focuses on tenant protections, said the 421-a program is, in a way, a self-fulfilling prophecy, as it encourages land speculation, drives up property prices, and then necessitates its own application. “I don't think that we need 421-a to subsidize unaffordable housing,” she said, noting that most of the housing built under the program remains out of reach for low-income families.

But, she conceded, “I do think that with land values as high as they are, some sort of tax incentive is necessary maybe to build new housing.” She said there are other tax benefits that could increase production. She cited, for instance, the 420-c program, which provides property tax exemptions to non-profit developers that create low-income housing in partnership with private firms.

“I think that there's still a lot of options for production if the city is willing to subsidize and support the not-for-profit development community in building housing,” she said. “421-a is not the only game in town.”

Note - This article has been updated to correct the accuracy of numbers on housing production from a New York Housing Conference policy brief.