Last year we noted the controversy over New York State's 421-A Program. This is a property tax rebate granted to real estate developers who build new multi-family residential units in New York City. The exact amount of the rebate depends on a number of factors, including the development's location and what percentage of units are dedicated to “affordable” housing as defined by the state.
The 421-A Program had been set to end in June 2015. The New York Legislature granted a short-term reprieve, but that extension expired on January 15 of this year. The main roadblock to reinstating the program is Gov. Andrew Cuomo's insistence that the city's developers reach an agreement with labor groups mandating the use of union labor on any future projects in order to qualify for the tax rebate. According to a January 15 report in The Real Deal, a website covering New York's real estate market, formal talks between the Real Estate Board of New York and the Building and Construction Trades Council of Greater New York have “collapsed—at least for now.”
This turn of events has stunned many in the New York real estate and legal community. One attorney told The Real Deal that it was an unprecedented situation “where two private organizations are going to determine the outcome of a law.”
Labor Demands vs. Affordable Housing
While Gov. Cuomo may be concerned with protecting union laborers, New York City officials are equally adamant about expanding the supply of affordable housing. Supporters of the 421-A Program say the tax rebates are a necessary part of Mayor Bill De Blasio's goal to create 200,000 new “affordable housing units.” Last November, a New York University report said “total returns from new rental development would likely rise across the city under the proposed new 421a regime compared to its predecessor.” This would include more affordable housing, according to the report, because the changes proposed by the legislature last year would more than double the tax abatement period while increasing the affordable housing set-aside requirement.
Unfortunately, the ongoing labor deadlock has left developers, lawyers, and even prospective renters in a state of uncertainty. It is not clear, as of this writing, when a deal will be reached and how the revived 421-A Program will actually work in practice. This means 2016 is shaping up to be a potentially revolutionary year for the New York real estate market.