Cuomo’s New Tax Giveaway For Developers Will Cost $600K Per Each Affordable Apartment

When New York state’s 421-a tax break program came crashing down early last year amid a standoff between developers and construction unions over wages, there were mixed feelings among many housing advocates.

On the one hand, 421-a had been a crazily inefficient system for encouraging affordable housing construction, handing out billions of dollars in city tax subsidies while costing by some estimates as much as $1 million per affordable unit created.

On the other, without 421-a, would we get any new affordable housing construction at all?

In November, Gov. Cuomo answered with a revised plan, redubbed Affordable New York, that would renew the tax breaks with longer terms, with some developers earning a complete tax exemption for 35 years. (Under the old law, tax breaks were capped at 25 years, and could begin phasing out in as few as 11.) And this morning, the city Independent Budget Office released its findings on how much Son of 421-a would cost taxpayers:

IBO estimates that if enacted, the new program would eventually add roughly $120 million annually—or $1.2 billion over 10 years—to the cost of previous version of 421-a that lapsed at the end of 2015.

The IBO report includes estimates of the average cost per unit by borough: $68,500 per unit in lower Manhattan, down to less than $12,000 per in the lower-tax reaches of the Bronx and Staten Island. But that’s cost per housing unit, not per affordable unit; when you take into account that only a small fraction of 421-a units are subject to rent regulations, report author Geoffrey Propheter tells the Voice that the cost per affordable unit would be $596,000, up 36.7% from the $436,000 cost under the old law.

(The city Department of Housing Preservation and Development has its own projections that are slightly lower than IBO’s, but still show a 29.1% jump in costs per affordable unit. Housing math is hard.)

The reason for the increased costs are those extra years of tax breaks, which would extend a full 35 years in a “special wage area” south of 96th Street in Manhattan and along the Brooklyn-Queens waterfront; elsewhere, the tax breaks would phase out starting in year 25. In exchange, affordable apartments would be subject to rent regulations for 40 years in the high-wage area, though the period would stay at 35 years in the rest of the city.

In other words, developers would get to pocket a decade or more in new tax breaks in exchange for five years of added rent regulation (plus higher construction wages) in lower Manhattan and parts of Williamsburg and Long Island City, and in exchange for nothing but the goodness of the governor’s heart elsewhere.

And the costs could be even higher than the IBO’s estimates. That Community Service Society report that estimated 421-a as costing taxpayers more than $1 million a pop for affordable units noted that some construction projects also received other tax breaks — a practice that ANHD has criticized as a form of double-dipping — yet the state’s figures allocate the entire credit for these new units to 421-a. Likewise, some affordable housing would likely be constructed with or without the tax breaks — discounting those that would be built regardless is what led CSS to its “more than $1 million” estimate. (IBO says it didn’t try to estimate the impacts of either of these factors.)

The upshot of all this: If Cuomo’s plan is approved, the city will send an extra $120 million a year to developers, in exchange for which some construction workers will earn higher wages, and in the 2050s, a few residents of Manhattan and East River waterfront apartments will see lower rents. There are undoubtedly better ways to run an affordable-housing railroad — rehabbing city-owned buildings could be done for less than $300,000 a unit, and East Brooklyn Congregations’ nonprofit Nehemiah townhouses have been built for even less — but with both big developers and the construction unions in its camp, it’s going to be tough to dislodge to governor from even an overpriced plan with few tangible benefits.

Asked if they agreed with the IBO’s assessment, and how the governor’s new 421-a plan is an improvement over the old one, Cuomo’s office responded with this statement:

In 2015, the Mayor proposed amendments to 421-a that made the program far more expensive overall, but stood to create more units of affordable housing. The Governor’s proposal provides more affordability for tenants and fairer wages for workers, but keeps the cost of the program from the original 2015 law largely intact. Any expenses in exchange for making sure that all New Yorkers have a safe and decent place to call home are minimal, 26 years out, and worth it.