What do fans and enemies of 421a property tax cessation hide

Left: James Willen, President, REBNY; Cea Weaver, Campaign Coordinator, New York Justice for Everyone; Kathy Hochul, Governor, New York (REBNY, NY Housing Justice for All, Getty Images, iStock / Illustration by Steven Dilakian for The Real Deal)

“But a better thing to do would be to change the tax system, which is incredibly screwed up.”

Cia Weaver, Justice justice for all

By now, you’re probably tired of reading about 421a. Really, what is left to say about this tax relief?

A lot, actually.

So far, we have mourned the tiring narratives of supporters and opponents of the reduction, which gives up nearly $ 1.8 billion in taxes on city apartments each year.

Supporters say that without 421a, the development of rental buildings in New York City would not be profitable. All we will get is luxury apartments, and the housing crisis will worsen.

Progressives say that without 421a, developers will still be evolving and New York State will be able to tax lost revenue on truly affordable housing.

The spin is dizzying. It’s time for someone to cut it.

First, the binding context. The tax benefit, renamed Affordable New York in 2017, will expire on June 15th. Gov. Kathy Hochul suggested a replacement (“485w” or “Affordable Neighborhoods for New Yorkers”). The industry loves it, but 421a haters call it more than the same.

Legislators refused to include it in the budget, so they will have to pass an independent bill to pursue 421a. Politically, it’s harder. There is talk of an extension while legislators negotiate an amendment.

Both sides are deceptive, intentionally ignorant or both. Here’s what they do not tell you.

First, developers routinely omit that 421a raises the prices they have to pay for land. This means that part of the tax relief enriches the landowners instead of subsidizing affordable apartments.

Do not believe? Think about it. Not having to pay property taxes for 25 years, then getting a discount for another 10, means developers can bid more for the land and still make a profit. If they had to pay property taxes, they would offer less for development sites.

I confronted the Real Estate Council of New York Leaders with this fact when they pushed my previous employer system in 2015 to support the 421a renewal. Their response was, “What? No!”

But I insisted. Eventually they corrected their refutation. “Okay, maybe yes,” they said. “But if we lose 421a, the owners will not lower land prices.”

I was dubious. “Landowners will sit on low-performing properties instead of making millions of dollars?” I asked. “What kind of capitalists are they?”

And Rabbi said, “Yes, the landowners in this city are very patient. They would wait years for the tax relief to be refunded.”

It is true that some will wait. This is why if state legislators want to dump the 421a, they must make it clear that it will not come back. The last time it expired, replacement negotiations continued, so developers waited instead to start projects.

But not everyone was waiting. Some landowners will continue to sell sites even if they are forced to lower prices to explain the lost tax break. Buildings that will be placed for rent were reduced under the 2019 Rent Act, but continued to be sold.

“There may be a freeze period where developers are not building because they are waiting for the tax cut to come back,” said Cea Weaver of Housing Justice for All, who opposes 421a. But in the end, they will do what builders do. “I find it hard to believe that developers just will not build,” Weaver said.

Opponents of 421a, on the other hand, omit crucial facts from their campaigns against it. One is that any new housing, even if it is at a market rate or limited to middle-income earners, helps afford a reasonable price now and in the future. Supply is in demand, and today’s luxury apartments’ become tomorrow’s affordable housing.

“We know that adding a supply of housing does help lower housing costs in the long run,” said Matthew Murphy, CEO of the Foreman Center of New York University, a real estate think tank.

Another fact that opponents of 421a underestimate is that without it, property taxes would be too high on newly built rents, so developers would build apartments on the site.

The shortage of new rentals will limit supply, and will allow existing rental property owners to increase rents. Policymakers need to stop tipping the scales in favor of rents or apartments and simply let the market provide the mix of types of properties New Yorkers want.

Even Weaver admitted that “421a lowers, in some respects, the property tax bill” on rent. “But a better thing to do,” she said, “would be to change the tax system, which is incredibly screwed up.”

Hochul and the state legislature, unfortunately, did not propose a renovation, as it would involve raising property taxes for some people – something few lawmakers are willing to do, especially in an election year.

Politically, it’s much easier for them to mess with 421a, and that’s what REBNY is asking for. It can be said that the trade group recognizes the political reality. But to some extent, it also creates it.

To be fair, the industry is pushing for property tax reform: it is funding a group called TENNY, which has demanded forced changes. But now the lawsuit is almost dead.

TENNY has indeed tried to recruit leading opponent 421a, City Comptroller Brad Lander, for its lawsuit. Lander did not join him, even though he, like Weaver, supports property tax reform.

But until the industry and its critics work together for a comprehensive solution, Albani will not do the right thing: reset the property tax system instead of sticking to complicated plans, allow more residential development and use the power of markets to ensure we get enough housing at all price levels.

Dogs and cats are not going to start playing together. Politicians, meanwhile, will continue to serve the narrow constituencies. The legislators on the left will kick and scream to the end 421a. The moderate Democrats will negotiate a correction similar to that of Hochul, and will add wage benefits to labor unions. A lip service to property tax reform will continue, as will the housing crisis.

And when the next version of 421a expires, everything will be done again.

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