NY policy battle pits affordable housing against tax breaks for the rich

Rosa Mendosa is afraid of losing her home. A grandmother who has lived in New York since 1981, she said through an interpreter, “I came to this country from Nicaragua because at the time there was a lot of war and violence in my country.”

Mendosa, her son, daughter and two grandchildren settled into an apartment in a low-income, immigrant enclave in the Brooklyn neighborhood of Bushwick. “Since I got to this country, I’ve lived in the same building,” she said. “I’ve never known any other place.”

But her home is now under threat from the possible June 15 expiration or weakening of New York’s rent regulation laws and the likely continuation of a complicated and controversial set of rules largely benefiting real estate developers, the 421-a tax abatement program.

For Mendosa and many of New York’s other low- and middle-income renters, 421-a has become a symbol of income inequality. It offers developers massive tax breaks for constructing ultra-luxury residential buildings. Those tax breaks are then passed along to the wealthy purchasers of those buildings’ condominiums. In return, the developers are required to reserve 20 percent of the units for affordable housing. A now discontinued program also allowed them to buy certificates that let them build the affordable units somewhere else, mostly outside Manhattan, which is home to 60 percent of the luxury buildings but fewer than 7 percent of the affordable units.

But now developers are looking to bring luxury buildings into the outer boroughs of the city, turning 421-a into a tool for gentrification in neighborhoods like Bushwick.  That, according to Mendosa, puts her and her neighbors’ homes at risk. As more luxury rental buildings move in, market rates rise, and landlords fight harder to get regulated renters out.

“What we see happening across the neighborhood is landlords trying to get people out,” she said. “So we’ve had to be strong. I’ve had to be strong.”

The 421-a program seemed a good idea when it came into being in 1971, when New York was very different from today. With 1,466 annual murders and rising violent crime, an economic downturn led to the city’s near bankruptcy and white flight. The city’s population was dropping, empty lots dotted the landscape, and no one was building. Mayor John V. Lindsay went to state officials in Albany with a plan: Offer developers an incentive in the form of a 10-year tax abatement if they would fill those vacant lots with residential buildings. It worked.

By the 1980s, the city was showing some signs of a comeback, construction-wise, in some areas. So when the Trump Organization applied for $50 million in tax abatements to build Trump Tower, a luxury condo building on Manhattan’s Fifth Avenue, then-Mayor Ed Koch refused it. Donald Trump sued. The city lost. However, that spurred changes in 421-a. From 1985 on, developers would no longer receive a tax breaks for building luxury housing unless they agreed to use those breaks to build affordable housing as well.

Despite a series of changes, the program remains complicated, rife with accusations of corruption and laced with loopholes.

Many critics say 421-a removes vast amounts of tax revenue from the city budget for little concrete gain in return. For example, take One57, a new building that soars 90 stories above West 57th Street, on what has been dubbed Billionaires’ Row. One57’s duplex penthouse recently sold for more than $100 million to an unidentified company. That should generate more than $375,000 a year in property taxes from that apartment alone. Only it won’t. Thanks to 421-a, the new owner will pay just over $17,000 a year.

By comparison, hospital worker Maribel Toure bought her modest home in what she calls a lower-middle-class neighborhood in Hempstead, New York, in 2004. When her husband lost his job and she was hurt in an accident, they fought off foreclosure in 2009. Her home is valued at $208,000. She pays $11,000 a year in property taxes. She said 421-a leaves her baffled. “How is it possible that we protect the ones who don’t need it?” she asked. “We are more the working people than these rich people, and they’re still passing laws, they’re still doing things to help them.” 

Another problem: How much affordable housing was created using 421-a, and where is it? Nobody seems to know.

The Municipal Art Society has been working to track those units, but because few records were required to be kept, it hasn’t been an easy task. “It’s a very complicated process, like a really old ship with many, many barnacles on it,” said the group’s vice president for law and policy, Sami Naim.

It picked through data provided by the city’s Independent Budget Office, which told the group how many luxury units were built under 421-a but not much else. “The data tells you the number of units, but it doesn’t tell you the number of affordable units built in there,” said Mike Ernst, a senior planner for the society. “So we went a bit further, and based on the space and the location of the development, we took an educated guess for all of those projects, the number of affordable units.”

The count continues, but the group’s findings showed that in one case, the city forfeited $3.3 million in taxes for a luxury build and received six affordable units in return. In another, $5.8 million in lost taxes netted 24 affordable units. Extell Development, the company behind One57, will provide 66 units of affordable housing in the Bronx, far from Billionaires’ Row. In 2014 alone, the city gave up $1.1 billion in tax revenue through 421-a, and no one knows for sure what the public has gotten in return. “I think that the general conclusion is that if your goal is creating affordable housing, for a billion dollars, this is a pretty inefficient way of doing that,” said Ernst.

The Municipal Art Society says it’s a system in need of change. Advocates for low-income New Yorkers say it’s a system that simply has to go. “I think our message has consistently been that 421-a should be wrapped up in a pretty little box and thrown in the ocean,” said Jose Lopez of Make the Road New York. “We’re talking about $1.1 billion dollars a year for a program that generates almost no affordable units, and by ‘affordable,’ we mean affordable to the lowest-income New Yorkers.”

That is a big question about affordable housing generated by 421-a: Affordable to whom?

The 421-a rules now force developers to have affordable apartments on site in most areas. But affordability, it seems, is based on calculating median annual household income which, in Manhattan, is almost $70,000, meaning even those in affordable units will pay rents far out of reach of the city’s poorest residents.

That leaves people like Mendosa out in the cold. “When you look at those buildings and who lives there, we don’t live there,” she said. “Often families are told, ‘This isn’t a building for families’ and ‘There’s no space for families.’”

The 421-a program and New York’s rent regulations are due to expire next week. And there are those who believe that while laws regulating rents need to be strengthened, 421-a may have outlived its usefulness — and worse. The former majority leader of the New York state Senate, Dean Skelos, has been indicted on federal charges that he took money from one of the city’s largest developers, in part to help the company obtain 421-a abatements for new buildings. The State Assembly’s former speaker Sheldon Silver is also facing charges, some reportedly connected to 421-a.

The battle over whether to change 421-a has Mayor Bill De Blasio, who has promised 200,000 affordable housing units over the next 10 years, and Gov. Andrew Cuomo, taking shots at each other. De Blasio said he has agreed with the city’s Real Estate Board, which represents building owners, to a plan that would tie the program to truly affordable housing and eliminate tax breaks for condominiums like One57. But Cuomo said that De Blasio’s plan has come too late and that he’s inclined to re-up 421-a as is.

Would developers build affordable housing without incentives? Probably not. The program, according to Naim, needs a lot more oversight. “Anything that’s worth a billion dollars should be tracked and monitored so that we can give a good grade on what we’re doing,” he said. “Is it successful, or is it failing? That’s the question. And that’s a question that continues to be unanswered, and that’s why we need clarity and transparency with respect to the program.”

Mendosa said she and her neighbors will fight to keep their rent protections and shut down 421-a, even though they’re up against one of the most monied and most powerful lobbies in the state. “No, we can’t lose our community. We won’t lose our community,” she said. “If we organize and all get together … we can win.”