New York City’s 421-a tax exemption has lapsed as of yesterday because of disagreements at the state level (NYS has a lot of control over NYC’s laws and policies, for those of you who don’t follow the topic closely). 421-a subsidizes a range of residential development from affordable to luxury. In the main, though, it subsidizes market-rate units.
This subsidy for residential development is heavily supported by the real estate industry. Many others think that the program provides an inefficient tax subsidy for residential development, particularly affordable housing development.
I fall into the latter camp. I would note, however, that NYC’s dysfunctional property tax system is highly inequitable because it taxes different types of housing units (single family, coop and condo, rental) so very differently.
With that in mind, let me turn to a policy brief from the Community Service Society, Why We Need to End New York City’s Most Expensive Housing Program. The reports key conclusions are,
At $1.07 billion a year, 421-a is the largest single housing expenditure that the city undertakes, larger than the city’s annual contribution of funds for Mayor de Blasio’s Housing New York plan.
The annual cost of 421-a to the city exploded during the recent housing boom as a result of market changes, not because of any intentional policy decision to increase the amount of tax incentives for housing construction.
Half of the total 421-a expenditure is devoted to Manhattan.
The 421-a tax exemption is a general investment subsidy that has been only superficially modified to contribute to affordability goals.
The 421-a tax exemption is extremely inefficient as an affordable housing program, costing the city well over a million dollars per affordable housing unit created.
The reforms made to 421-a in 2006 and 2007 have not resulted in a significant improvement of 421-a’s efficiency as an affordable housing program.
A large share of buildings that receive 421-a and include affordable housing also receive other subsidies, such as tax-exempt bond financing. Affordable units in these buildings cannot be credited entirely to the 421-a program.
The great majority of the tax revenue forgone through 421-a is subsidizing buildings that would have been developed without the tax exemption. (3-4)
The brief argues that 421-a should be allowed to expire and be replaced “with a targeted tax credit or other new incentive that is structured to provide benefits only in proportion with a building’s contribution to the affordable housing supply.” (4)
I don’t have any real disagreement with the thrust of this brief. I would just add that the fight over 421-should be expanded to include an overhaul of the City’s property tax regime. It is unclear, of course, whether Governor Cuomo and NYS legislators have the stomach for a battle so large.
Few topics are more fraught in NYC than rent regulation and stances about it are typically set by where people are financially and ideologically. It is always useful when someone tries to add some good old-fashioned facts to the debate in order to help craft good policies. That is particularly true now, given that NYC’s rent laws are supposed to expire on June 15th.
The Citizens Budget Commission has issued a report, 5 Myths About Rent Regulation in New York City. The CBC is hoping that that this report will inform the New York State legislature’s debates over the renewal of New York City’s rent laws (for those who don’t follow this carefully, NYS has jurisdiction over NYC’s rent regulation). Unfortunately, the report is ideologically skewed, which limits its usefulness for those trying to get their hands around this topic.
Here are the CBC’s five “Myths” and “Facts:”
Myth 1: A majority of tenant households in New York City are rent burdened.
Fact 1: 38 percent of tenant households in New York City are rent burdened.
Myth 2: Market-rate units in New York City are not affordable to most tenants.
Fact 2: In market-rate units, 54 percent of tenants have affordable rent.
Myth 3: A rent-regulated housing unit is an affordable unit.
Fact 3: Among tenants in rent-regulated units, 44 percent are rent-burdened.
Myth 4: Middle-income households cannot find affordable housing in New York City.
Fact 4: Outside of Manhattan, 96 percent of middle-income tenant households are not rent burdened.
Myth 5: The number of rent-regulated units is rapidly declining.
Fact 5: The number of rent-regulations is stabilizing.
The CBC claims that public officials and housing advocates are using “problematic” figures and characterizations. That is most certainly true in many cases, and par for the course for advocates. But the CBC does much the same, which should not be par for the course for a nonpartisan civic organization.
The second “Fact” is particularly laughable because CBC is doing exactly what it accuses advocates of doing — some form of rhetorical bait and switch. The second “Myth” is about tenants overall, while the second “Fact” is just about tenants who are currently in market-rate apartments. This is an apples to oranges comparison. Once you see the bait and switch, you see that CBC’s figures actually support the truth of this supposed second “Myth.” There are more problems contained in this document, but I leave it to you to find them for yourself.
I have no problem with CBC trying to make the debate over rent regulation more fact-based. But CBC should follow the wise advice of Polonius: “This above all: to thine own self be true.”
Picture: "Polonius" by https://www.oregonlink.com/elsinore/poveyglass/polonius.html.
