State Legislature Appears Ready to Let the 421-a Tax Break Expire

Yesterday Habitat reported that the J-51 tax abatement, which helps middle-class co-ops and condos pay for capital projects, may be revived after it expires in June — and it might even become a tool to help boards pay for costly retrofits that will help them comply with the Climate Mobilization Act.

Today The New York Times reports that the half-century-old 421-a tax break, which is designed to spur the development of affordable housing, will be allowed to to die a quiet death when it expires in June. The non-renewal is a significant blow to developers, the governor and the mayor.

Gov. Kathy Hochul pushed for a revised and rebranded version of the subsidy, but it never gained broad support in the Democrat-controlled Legislature, whose members were loath to renew a lucrative tax break for the real estate industry before this fall’s elections, according to lawmakers and real estate officials.

The 421-a subsidy is the most generous property tax break in the city, costing New York City about $1.77 billion annually in lost tax revenue. It has subsidized the construction of hundreds of thousands of market-rate apartments and condominiums across the city, largely in Manhattan, and typically requires developers to build some below-market rentals. But critics say it has amounted to a tax giveaway for developers in return for too few units for low-income New Yorkers, and sometimes none at all.

“421a is a broken, absurdly expensive Band-Aid placed on top of New York City’s broken property-tax system,” says Brad Lander, the New York City comptroller, who has advocated for the end of the tax break. “It’s good that it is not being renewed.”

The immediate impact of the expired subsidy, which officially ends on June 15, won’t be felt for years.

Developers have warned that without the tax incentive, new residential construction would be too expensive to pursue and could be scaled back significantly in New York City at a time of escalating housing prices. In recent months, builders have rushed to break ground on new projects to qualify for the existing tax break before the deadline.

Matt Murphy, the executive director of New York University’s Furman Center for Real Estate and Urban Policy, says that rental projects taking advantage of the 421a program before it ends would continue to open in the coming years as construction is completed. After that, he adds, developers would be likely to avoid building market-rate multifamily rentals and instead would construct condominiums, which generate higher returns. Without 421-a, the city’s property-tax system slightly favors condo development because owners of condos can qualify for a homeowner tax break.

“It’s not like losing (421-a) will help make the city more affordable," Murphy says. "All it does is introduce a huge amount of uncertainty in development and exacerbate the housing shortage in the long run.”