Residential Real Estate: The 421-a Expiration
Real Property Tax Law Section 421-a was an integral part of building affordable housing in New York City insofar as it enabled developers to gain real propertytax exemptions for their projects. The Department of Housing Preservation and Development was authorized to determine eligibility for these exemptions, especially when the projects received grants from a federal, state, or local agency.
According to the Pratt Center for Community Development, when Section 421-a was passed in 1971, the New York State legislature hoped to spur real estate development in New York City at a time when the population was decreasing as residents moved to the suburbs. Eligible projects fit into several categories. The properties could not be tax exempt. The developments were built primarily on vacant or underutilized land. This included, for example, putting up a building with many more units than had existed before.
In 2015, the state budget included an extension of the program. This extension was dependent upon whether the largest trade group for developers could make a deal with the largest organization representing the construction union regarding wage requirements for construction workers at 421a sites. But the negotiations did not occur in time, and the program expired on January 15, 2016.
Prior to its expiration, Mayor Bill De Blasio recognized Section 421-a as a linchpin in his goal to gain thousands of units of affordable housing. The New York University Furman Center anticipated that upon an expiration of the program, there would be a disruption in the housing supply, and that a trend would begin towards filings for market-rate condominium development. However, early indicators show that without the program, condominium filings are down. There was also a large bump in 421-a filings for the construction of apartment units prior to the expiration date. As of now, it is still too early to tell what the real estate future will loo k like without 421-a.