Band-Aid Extension of 421-a Saves Thousands of New Homes
The tax abatement provision titled 421-a that encourages urban renewal and the construction of affordable housing in New York, had its construction completion deadline moved out five years to 2031.
A five-year extension can make a very big difference, even on huge construction projects.
This week Governor Kathy Hochul and the state legislature agreed to allow builders five more years to finish the projects they started under the 421-a tax incentive program and still get the benefits. That program frees certain new multiple dwellings from paying local property taxes. Builders had been required to complete their 421-a projects by June 15, 2026. They now have until June 15, 2031 to finish.
The new completion extension will allow many housing projects that were at risk of missing the deadline, mostly due to the pandemic, to move forward, saving as many as 71,000 new units, and 21,000 affordable housing units.
The 421-a History
The 421-a tax diversion program, which was initiated in the 1970s, has been credited with driving much of the construction in New York City since, and its affordable housing requirement has likewise been praised for creating homes for New Yorkers who would otherwise be priced out of the market. When builders meet the provision’s criteria, they can claim tax exemption on the resulting property for up to 25 years.
The provision has faced several facelifts over the years, engaging challenges from politicians, builders, unions and civil rights advocates. Each time the law has been successfully updated and saved. But the current form of the legislation was allowed to expire in June 2022 with no alternative in hand and legislators have been fruitlessly fighting over a replacement provision ever since.
Without a replacement for 421-a, it will become more difficult to build affordable housing here, which will be tragic for New York’s already squeezed middle-class.
Unions and New Yorkers React
The extension of the completion deadline is a band-aid being lauded across the city and state. The New York State press release on the agreement says, “By facilitating a longer timeline, the 421-a construction completion deadline extension allows for the thoughtful, sustainable development of housing that meets New Yorkers’ diverse needs.” Governor Hochul added, “we are able to put more than 70,000 new homes back on track and create affordable options to live in New York City.”
The president of the New York chapter of the laborers union SEIU, Manny Pastreich, said “Like so many other working families, our 100,000 members in New York have been facing the same affordability crisis — rising rent, eviction threats, and not being able to find housing within a reasonable commute to their jobs.” He added, “By extending the 421-a construction deadlines, tens of thousands of working New Yorkers will have apartments they can afford and building service workers will be ensured family-sustaining jobs.”
Assemblymember Emily Gallagher said, “We’re so excited to see 21,000 new affordable units coming to New York City. Seniors and working people are in desperate need of additional affordable housing, and this is such a valuable start.”
But it’s Only a Band-Aid.
While local politicians, unions and residents heave a sigh of relief over the extension, the fact that 421-a is sunsetting is consequential in a number of ways, particularly concerning the issue of fair pay and who gets to build our city.
One stipulation of 421-a that was adopted when it was revised in 2015, is how the construction workers are paid. Workers on 421-a projects below 96th Street must be paid an average of $60 and hour. Workers on 421-a projects otherwise within one mile of the East River must be paid an average of $45 an hour. This was an argument made and won by unions, which guarantee their members a fair and living wage.
Competing with unions on pay scale are the non-union contractors who are notorious for paying their labor poverty wages, often below the minimum wage and without benefits. In fact, many non-union construction workers have been wage theft victims to these same bosses. These contractors have been caught skimping on budgets in other ways too, such as avoiding safety and materials requirements, practices that are anathema to unions.
Unions successfully argued that if a developer is going to benefit from a tax abatement which takes funds away from public budgets, that developer shouldn’t be allowed to win those projects by hiring contractors who abuse workers. Unions wanted worker pay to match union pay scales. But the construction lobby in New York was able to force the $60/$45 compromise.
What Happens Next?
One New York City construction estimator weighed in. He said, “421-a represents a commitment to working-class New Yorkers that we will make efforts to create housing you can afford here. 421-a has done a lot to make that possible. But it’s insane to make that promise while you’re paying a contractor who is actually stealing from those very same working-class people. That’s why the rule about fair pay was added in 2015. It made a lot of sense, helped a lot of people, unions included.”
He said, “What will happen to these types of projects after 421-a is gone, these 300-plus unit projects that include a percentage of affordable housing? Easy. Developers won’t touch them. They liked that tax abatement and without it I believe they’ll just want to stick to building luxury high-rises. But if New York does make some kind of replacement provision, it had better include a pay standard. Otherwise, developers will feel free to hire non-union, and all the skin-flinty stuff they do to control costs will return. We didn’t really have those bad practices on 421-a projects for almost 10 years. But they’re coming back if we don’t do something about it.”
Without a replacement for 421-a, it will become more difficult to build affordable housing here, which will be tragic for New York’s already squeezed middle-class. And if our politicians and the construction industry muscle the will-power to draft a replacement provision, it must include a rule governing the pay scale afforded to the construction crews. Without such a rule, unscrupulous contractors will be free to return to the budget manipulation tactics that have allowed them to undercut bids from union contractors. Builders should not be allowed to apply nefarious standards when pitching to win projects that will give them a tax windfall and withhold tax funds from city budgets for decades. New York needs a serious set of standards to level the playing field if it intends to replace 421-a.
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