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Mayor's Rezoning Plan Hobbled Without 421-a Break, Experts Say

By Amy Zimmer | March 22, 2016 10:02am
 A housing lottery opened recently  for 97 below-market units in 33 Eagle St. in Greenpoint. Under zoning changes, the city would require any new buildings in
A housing lottery opened recently for 97 below-market units in 33 Eagle St. in Greenpoint. Under zoning changes, the city would require any new buildings in "inclusionary zones" like this must include affordable housing, but projects may face financial challenges without the state's 421-a tax breaks.
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Handel Architects

MANHATTAN — As the City Council prepares to vote Tuesday on Mayor Bill de Blasio’s citywide rezoning proposals to spur the construction of affordable housing, the mayor went on a publicity blitz advocating for the changes.

But the mayor’s vision of building 80,000 affordable units over the next decade may be hobbled without the support of one man: Gov. Andrew Cuomo.

De Blasio’s Mandatory Inclusionary Housing plan would require certain new construction projects to include a portion of permanently affordable housing units.  

► READ MORE: Here's How City Council Changed De Blasio's Citywide Rezoning Plan

Yet, questions remain on what developers will be able to build in the first place and whether the plan can meet its targets without the boost developers get from the state’s controversial 421-a tax break.

Many in the real estate community have said they need 421-a to build rentals in the city — and without it, building condos makes more financial sense.

“The loss of 421-a is a big obstacle,” said Jolie Milstein, president and CEO of the New York State Association for Affordable Housing, the trade association for New York’s affordable housing industry. “The absence of it doesn’t mean [the plan] can’t go forward, but it makes it more challenging with the financing of projects.”

The tax break, which expired in January, was created back in the 1970s as a way to spur development primarily in Manhattan. As the city's economic climate improved, 421-a was much criticized for encouraging the development of market-rate housing.

Milstein was hopeful that a better replacement would take its place. But nothing’s on the table.

Cuomo charged two groups with hashing out a deal on 421-a — the Real Estate Board of New York and the Buildings and Construction Trades Council. After they failed to agree on paying construction workers a prevailing wage for buildings with 15 or more units, the tax abatement program expired, and the governor has yet to announce a program to take its place.  

“There are no ongoing discussions regarding the design of a housing program that would replace 421a,” Dani Lever, a spokeswoman for Cuomo, said in an email.

At a City Council hearing last month on the Mandatory Inclusionary Zoning proposal, City Councilman David Greenfield pointed out that 421-a was mentioned 438 times in the city’s proposal — reflecting how important the state program was for the city’s plan.

The city has said that alternative tax abatements, including 420-c and Article XI, could help projects that get subsidies from the city’s Department Housing Preservation and Development.

But these tax breaks require more hurdles for developers to clear, including having all affordable units, partnering with nonprofits and getting City Council approval. And while developers may use the programs in less pricey real estate markets like East New York or Jerome Avenue in The Bronx, others may prefer not to use them when they build projects in hot neighborhoods such as Long Island City or Gowanus.

"HPD has tax exemption tools that will serve as strong substitutes for 421-a at our affordable housing projects, including under our Mandatory Inclusionary Housing program,” said mayoral spokesman Austin Finan.

“Indeed, those exemptions are best suited for areas of the city we plan to rezone under MIH," he continued. "But, would we prefer to have 421-a? Absolutely. And, until we have a smart, effective tax abatement program that incentivizes affordable housing across market types, we’ll see luxury condos being built in the hottest neighborhoods instead of the rental housing we so badly need. That is something we urgently have to correct.”

REBNY has long said that without 421-a, its members would likely eschew building rentals — with or without affordable housing requirements.

“The mayor and City Council rightfully are seeking to address one of the most critical objectives facing the City — providing more affordable housing across a broad band of income levels,” REBNY President John H. Banks III said in a statement. “Without as-of-right programs like 421-a, it is very difficult to address that objective in a meaningful way throughout the five boroughs.”

Under de Blasio's initial proposal the lowest income targeted for the affordable housing was for those making 60 percent of area median income, or AMI. That amounts to an annual income of $46,620 for a family of three. As part of City Council's changes, units would be affordable to those earning 40 percent of AMI — or $31,080 a year for a family of three.

De Blasio said Monday it will be an historic first to have a plan requiring developers to create affordable housing whenever they get a rezoning or the city allows them to build taller — whether it's a rezoning of an entire neighborhood or just one site.

"This will be the strongest and most progressive affordable housing plan anywhere in the country, any major city in the country,” de Blasio said on AM 710.