It’s beginning to look more and more like the controversial tax break to incentivize developers to build affordable housing will expire without a replacement this year. With just three days left of the scheduled legislative session remaining, lawmakers have shown no appetite to renew or replace the 421-a program. But this wouldn’t be the first time that lawmakers allowed the tax break to lapse, giving members of the real estate industry a glimmer of hope that they’ll have more success next year before its absence would truly be felt.
The last time 421-a came up for renewal in January 2016, lawmakers allowed the program to expire despite strong advocacy from then-Mayor Bill de Blasio to renew it. For over a year, developers could not begin new projects that benefited from the tax break, with its renewal only coming in November of that year. But the program nonetheless came back with no indication that the housing developments in New York City took any major blows. Members of the real estate industry warn that without the tax break, many developers won’t be able to afford to build new housing, let alone affordable housing. But just as it would take many years for the state to recoup the amount of money it could have made in tax revenue, it would take some time before this alleged doomsday scenario would actually take effect.
If 421-a lapses on June 15 without a renewal or replacement, all the buildings that currently benefit from the tax break will continue to do so until the end of the agreed period. This includes developments that have not even been completed yet. That means that the city won’t see an immediate boon from new real estate tax revenue if the program expires. Although it is a $2 billion program, the city would not suddenly have that money at its fingertips to use for other affordable housing projects. Housing advocates have long said that the high cost of the program could be redirected to other causes, but that would take decades.
By the same token, a temporary lapse would not cause an immediate collapse of the city’s housing market, as some in the real estate industry seem to warn. Projects can take years to plan and get off the ground, so a temporary lapse would likely impact a handful of developments at most, and even then serve more as a delay. The evidence in 2016 suggests that would be the case, as developers did not suffer any great losses or inability to build in the immediate aftermath of the expiration.
Of course, 2016 had an entirely different landscape in the state Legislature, making a lapse far more likely to be just temporary. Republicans still controlled the state Senate and then-Gov. Andrew Cuomo managed to strike a deal. Now, Democrats who generally find themselves in opposition with the real estate industry control both chambers and have made it clear that they have little appetite to continue offering developers tax breaks for mostly market rate apartments. The situation in the long run may be more dire for the real estate industry than it was in 2016.
Gov. Kathy Hochul said at a recent press conference that she doesn’t expect lawmakers, who rejected her proposal for a replacement to 421-a during budget negotiations, to agree to a deal before the end of the legislative session. But she added that a renewal or replacement would top the list of her priorities at the beginning of next year, planning to get it approved quickly when lawmakers return in January. If she manages to strike a deal over the next several months, the expiration, despite fears from the real estate industry, may ultimately become just another blip in its history, like 2016.