New York City is famous for its luxury towers, but many believe that tax exemptions for the super rich have gone too far.
Enormous tax breaks for the enormously wealthy might make some people cringe, but if they fall under legislation that’s already in place, what’s the problem?
The problem is that the New York legislation in question, known as 421-a, was designed to promote affordable housing in the city. And unfortunately, multi-million-dollar condos can hardly be considered affordable by anyone’s standards.
The Beginnings of 421-a and Where it Went
The official title of 421-a is “N.Y. RPT. LAW § 421-a : NY Code – Section 421-A: Exemption of new multiple dwellings from local taxation.” Under this law, instituted in the 70s, and which you can read in full at FindLaw, tax exemptions are available for new buildings, but there’s a catch. Each new building must contain no fewer than 20 percent affordable housing.
Further, it states that all rental units are subject to rent control. At NYC.gov, there’s even a rent calculator and home affordability calculator.
421-a was designed an incentive to builders who agreed to incorporate affordable housing in the city. But its critics say that what’s happened is that it’s become a tax shelter for developers and super rich buyers, and that the city has lost untold tax dollars as a result.
How 421-a is Really Being Used
In February, the city saw an official strike against 421-a, according to NY Curbed. A building, situated at 49 East 34th Street and built in 2007, was forced to close and convert to affordable housing. The original developer, Esplanade Capital, was granted 421-a eligibility, but the sale of the property didn’t pan out. The developer defaulted on the construction loan, which is when Bridgestreet Corporate Housing stepped in.
CIM Group ultimately bought the property, and Bridgestreet continued using it as “extended-stay housing,” which classifies it as a hotel. And although hotels do not qualify for 421-a tax credits, CIM Group kept enjoying them. But the enjoyment has been short lived, as the company will repay the $4.4 million in taxes credits plus nearly $300,000 in investigation costs to the city.
State Attorney General Eric T. Schneiderman explained that “We cannot and will not allow the 421-a program to act as a giveaway to line the pockets of the rich and powerful.” He asserts that affordable housing requirements will be enforced on all properties gaining tax credits under 421-a.
Proponents of 421-a say the tax breaks are fair, aren’t permanent, and that everyone will ultimately pay their due.
How Tax Cuts Affect the City
Tax breaks for developers who meet the 20 percent requirement seem reasonable. The builder gets a break, and buyers can access affordable units in the legendarily expensive city. But there’s an important side effect that’s got critics buzzing.
Henry Melcher for the Architects Newspaper explains that a newer building, known as One57, also qualifies for 421-a credits. But what this also means is that the anonymous buyer of the $100+ million penthouse receives a 95 percent tax break which could last for 25 years. To make matters worse, the building doesn’t meet 421-a requirements at all. It was granted an exemption by state legislators.
Why the exemption? That’s what U.S. Attorney Preet Bharara wants to know, says Melcher and numerous tenant rights activists. Ilana Maier, Metropolitan Council on Housing Program Director, explained to Architect’s Newspaper that 421-a should no longer be called a program for affordable housing. It should be called a tax subsidy for billionaires.
The fate of 421-a is unknown, but there are plenty of people fighting on both sides. The 44-year-old policy has outlived its usefulness, according to critics. And with it facing renewal in June, Mayor Bill de Blasio is feeling the pressure to abolish it altogether.
Developers aren’t the only ones who can shape a community for better or for worse. Architects also have the ability to affect quality of life and help shape history. When you see a housing cause that needs a champion, no one is better poised to stand up.
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