Luxury Condo Unit-Owners Benefitting from 421-a Tax Break

Yesterday we reported that numerous state legislators want to exclude Gov. Kathy Hochul's proposed overhaul of the 421-a tax break from the upcoming state budget. Instead, they want time to debate the merits of the governor's overhaul of the controversial tax break that was intended to increase the stock of affordable housing. Some say it should be scrapped altogether. Today The New York Times reports that developers have reaped billions in tax breaks under 421-a, but many developments feature "affordable" units that are priced beyond the reach of average New Yorkers.

The Times reports: "In buildings with condos, the tax break extends to individual (unit-)owners, an exemption available in some of the most prominent residential projects in Manhattan, including 35 Hudson Yards, a luxury condo tower. Whoever buys the full-floor penthouse on the 90th floor, currently for sale for $49.5 million, would pay just $27,500 in annual property taxes because of a 421-a exemption that lasts 20 years. Without the tax break, the yearly property taxes would be $342,000."

First introduced in the 1970s, the tax break for builders of multifamily housing was meant to promote new residential construction when New York City was facing a fiscal crisis and few developers were building anything. After the economy rebounded, the subsidy remained and started to evolve, slowly adding various affordability requirements to qualify for the tax break.

Among the opponents of the 421-a tax break — and Hochul's proposed modifications of it — is city Comptroller Brad Lander, who has issued a report stating that the tax break costs the city nearly $1.8 billion in lost tax revenue yearly, while it has failed to produce enough affordable units to stem the city's housing crisis. Instead of modifying the 421-a break, which is due to expire in June, Lander has urged the state Legislature to set a Dec. 31 deadline to overhaul the city's antiquated and unfair system of levying property taxes.

Another example cited in the Times report is Jackson Park in Long Island City, Queens, a 1,871-unit luxury development in three towers where penthouses rent for $8,500 a month. The developer, Tishman Speyer, legally navigated loopholes in the tax exemption to win an annual reduction of $21 million that nearly eliminates the development's property tax bill. Since it was built before a provision of 421-a expired, Tishman Speyer was able to include zero below-market units. Meanwhile, co-op and condo boards fret that their soaring property taxes are threatening their buildings' viability.

Critics say too many apartments marketed as "affordable" are only within reach to families making well over $100,000 a year — far higher than the city’s median household income — and that loopholes in the program’s different versions have allowed some rental and condominium buildings to not include any low-cost units.

Paula Crespo, a senior planner with the Pratt Center for Community Development, which has criticized the program, said she considers the tax break program “a missed opportunity to require something back from the developer for these decades of tax exemptions.”

Hochul's proposed tweaks to 421-a have won the backing of Mayor Eric Adams and the Real Estate Board of New York.