Lawmakers are about to duke it out over a little section of the tax code with a really big impact on how housing gets built and paid for in New York.

It’s a tax break dubbed 421-a, and if you’re an apartment-dweller here, those numbers and letters may not mean much to you.

But the tax break, set to expire on June 15, is a huge deal for housing in the city. How huge?

  • It cost $1.7 billion in lost revenue last year. That makes it the most expensive tax break in the city, a title it has held since 2007, per Department of Finance records analyzed by the Community Service Society. The second-highest tax break, an abatement for coops and condos, cost $655 million last year.
  • More than half, or 56%, of all the city’s multifamily residential units created in the past eight years involved 421-a, according to Housing Preservation and Development data analyzed by the Real Estate Board of New York.
  • More than a quarter, or 28%, of affordable units in the same time period were subsidized by 421-a, REBNY’s analysis found.

Progressives want to see the program scrapped, and its fate will bring a big fight between detractors and the governor. Sources close to the debate told THE CITY they put the tax break’s chances of renewal at about 50-50. This week, Mayor Eric Adams threw his support behind the governor’s proposal to keep the tax.

As Albany lawmakers negotiate the next phase of this important incentive, here’s what to know about what 421-a is, where it came from, how it may be changing — and what that means for development on your block.

Plus: A lot of people may not realize that, because of 421-a, they could be living in an apartment eligible to be rent stabilized without knowing it. Scroll to the bottom of this article for tips on how to find that out!

Where did 421-a come from, and what does it do?

It’s evolved through the years, but 421-a is, fundamentally, “a tax incentive for there to be residential development,” said Barika Williams, executive director at the Association for Neighborhood and Housing Development.

The city gives developers a break on their taxes and, in exchange, they build residential dwellings here.

It was created in 1971 at a tough time for New York. White flight, disinvestment and arson fires marked the city. The tax break known as 421-a emerged as a way to spur construction and “to attract the middle class,” as then-Mayor John Lindsay put it.

“This is the moment in time where there’s real concern about the viability and whether or not New York City’s residential market, period, will survive,” Williams said.

In the 1980s, as developer interest in the city slowly returned, the program incorporated ways to push builders to not just create any housing, but to make some of it affordable.

Those incentives remain today: developers get certain breaks on taxes — for different time frames and at different levels — if they agree to include income-restricted units, i.e. “affordable housing,” in their projects.

What does that look like in the real world? If you’ve ever applied for an apartment through the affordable housing lottery system, you already know. Many apartments listed there were created in 421-a buildings, which you can see cited in the listing details.

A popular 421-a option used by developers today is to create a building with 80% market-rate units and 20% income-restricted units. Affordable units created within the tax break program now are evenly dispersed within a building with the market-rate units. But that wasn’t always the case. Remember “poor doors”? Those were a function of a previous version of 421-a, updated in 2015.

What is the governor proposing now, and how will it change the tax break?

A new version of 421-a is now on the table, unveiled by Gov. Kathy Hochul earlier this month. She pitched it as a major reform, and gave it a new section of the tax code and, therefore, a new name: 485-w.

But no expert who spoke with THE CITY, for or against the program, thought of her proposal as a particularly drastic departure from the past. 

There is one major difference from previous versions, however: The governor’s proposal would make new apartments more deeply affordable, meaning more will be open to future tenants with lower incomes.

Previously, people making up to 130% of the area median income, or AMI — $139,620 for a family of three — would qualify for “affordable” units through the lottery in 421-a buildings. Hochul’s plan would drop that ceiling to 90% of AMI for buildings up to 30 units. For larger buildings, the highest income would be 80% of AMI.

Units would have to remain affordable beyond when the tax break expires, a significant departure from previous versions.

There is also a new option to allow developers to create new condominium buildings with income-restricted units to allow affordable homeownership opportunities.

So, everybody’s happy now, right?

Not by a long shot!

Critics of the program, some of whom have called for years for 421-a to be scrapped entirely, say Hochul’s proposal only tweaks a flawed program.

Debipriya Chatterjee, senior economist at the Community Service Society who co-authored a new report on the cost and results of 421-a over 30 years, said “we appreciate the deepening of the affordability,” but stressed it isn’t enough to redeem a tax break she believes should be removed entirely.

“It doesn’t change the inherent structure,” she said. “It perpetuates the same sort of inefficiencies that 421-a comes with.”

New City Comptroller Brad Lander is among those calling for the tax break to be scrapped completely. Afterwards, he wants lawmakers do the hard work of wholly reworking the city’s property tax system. Why? New York’s tax system largely over-taxes large rental buildings, among many inequities. Some view 421-a as a Band-Aid on that.

“Let 421-a expire. Give ourselves a deadline — I propose the end of the calendar year — and work very hard … and let’s aim for comprehensive property tax reform,” he told THE CITY in a recent interview.

“It’s always going to be hard, but this would be a good time to try,” he added. “If we just warm over 421-a, the odds evaporate to almost zero that we’ll do it.”

365 Bond, a luxury residence constructed on the edge of the Gowanus Canal, has 421-a discounts. Credit: Jason Scott Jones/THE CITY

In the real estate world, the proposal brings a sense of relief that the governor is backing some kind of replacement for 421-a. But because the legislature has to hammer out the details before Hochul’s proposal has a chance to become law, much is unknown.

Judy Lefkowitz, a 421-a specialist at the tax abatement services firm Metropolitan Realty Exemptions, said owners she’s spoken with are “not at peace with it yet.”

“There’s such drastic differences in opinion, it’s not sure which way it’s going to be finalized,” she said. “Is it going to be worth it to them to develop at all? What kind of development is it worth for them? And so on. So, it’s still very up in the air.”

Lefkowitz also worried that, because the construction option with higher incomes attached — at 90% of the area median income — applies to buildings with 30 apartments or less, developers will favor smaller projects overall. That may reduce the total number of homes created, she said.

Speaking on the governor’s behalf, Charni Sochet, a spokesperson for the state’s Department of Housing and Community Renewal, said the new proposal will serve “lower income households across the city” and ensure “greater efficiency of taxpayer dollars.”

“Incentives are an important tool to create affordable rental housing in high-cost neighborhoods near good jobs and transportation, and provide vital opportunities for affordability to be woven into the fabric of the city as we continue to grow the housing stock,” she said.

What’s next, and what’s the argument in front of Albany lawmakers?

As the current session of the legislature continues, lawmakers will take up 421-a as it considers a busy slate of issues, including redistricting, the budget and the rest of Hochul’s housing plan.

Arguing against the new 485-w program are a number of academics, budget crunchers and advocates for low-income New Yorkers who say the program costs too much and doesn’t produce enough housing.

“If you think of the budget as the primary document of the city or state’s priorities, then 421-a is number one — and what 421-a mostly does is subsidize market-rate apartments,” said Samuel Stein, a housing policy analyst at CSS.

For Williams at ANHD, it’s about priorities.

“Why have we created a system where they’re getting a tax break and, meanwhile, we have millions of residents across the city who are saying, I can barely make these ends meet?” she asked.

Cranes loom large over construction at 4 Hudson Square. Credit: Hiram Alejandro Durán/ THE CITY

Meanwhile, the development industry will lobby hard to keep 421-a in place, making the case that it is needed to lessen the city’s housing crunch by spurring construction of more places for New Yorkers to live.

By REBNY’s estimation, scrapping 421-a would mean building large rental properties would no longer be profitable. Developers could choose to construct other types of developments — office buildings, warehouses or condos — that are more cost-effective, or leave a piece of land undeveloped.

REBNY’s president James Whelan said in a statement that “the Governor’s proposal provides the private sector with an important tool for producing rental housing at deeper levels of affordability permanently” and the group is looking “forward to continuing to work with the State and City on long-term solutions to address the housing supply crisis in New York City.”

By many metrics, New York has been in a housing crisis for years. The supply of new housing has not kept up with growth of new jobs in New York in the past two decades. Nearly half of renters are burdened by their housing costs, meaning they pay more than 30% of their income toward rent.

Mark Willis, a senior policy fellow at the Furman Center for Real Estate and Urban Policy and a former deputy commissioner at HPD, warned against any “dramatic changes in the established rules,” like with 421-a, that could disrupt housing production pipelines.

“We still have a shortage of housing — both subsidized, or affordable, and market rate,” said Willis. “As we continue to create and preserve affordable housing, it’s essential that we don’t unintentionally discourage market-rate development.”

Check to see if you’re eligible for rent stabilization under the program:

Enforcement of the rules around the 421-a program have been notoriously lacking. ProPublica has reported how landlords in thousands of city buildings did not notify tenants eligible for rent stabilization under a previous version of the tax break, or overcharged them. The real estate watchdog group Housing Rights Initiative (HRI) has brought multiple lawsuits against city landlords alleging fraudulent 421-a-related overcharges.

Not every apartment in a building that got the 421-a tax break will be eligible for rent stabilization. For example, some high-rent, market-rate apartments in buildings built after the 2017 version of the tax break may not

But experts say if your building gets the 421-a tax break, there’s a pretty good chance you could be eligible for rent stabilization.

To figure out if you might be among those lucky tenants HRI suggested doing some homework:

First, figure out if your building owner gets a tax break through 421-a by searching your address on this lookup tool from the Department of Finance and then click on “Benefits – Business & Construction” on the left side of the screen. This will show all of the exemptions that the building receives. If 421-a is listed, then that building is receiving a tax abatement!

The next step is to get a copy of your rental history from the state’s Division of Housing and Community Renewal. You can do that by calling (833) 499-0343, pressing 1, then pressing 5 and requesting a copy of your rental history be sent directly to your address, or submitting a request through DHCR’s online portal.

Your rental history is the only document that will give you a clear sense of whether you are eligible for rent stabilization. If you need help parsing it, HRI said they can help. Contact them here.