Building Permits Soared Before Developer Tax Break Expired, New Numbers Show
Permits for more than 58,000 apartments show rush to secure lucrative 421-a benefit ahead of state law’s June expiration.
Newly released numbers show New York City real estate developers filed for a record number of building permits in the first half of 2022, as they rushed to qualify future projects for a lucrative tax abatement that expired in June.
The surge could provide a pipeline of apartments while supporters and opponents maneuver in Albany over whether to replace the tax break, known as 421-a. But some industry players warn that rising interest rates could mean many projects will never materialize.
Data posted Thursday by the Department of City Planning shows developers filed permits for 58,623 units in the first six months of the year. That’s nearly as many as for all of 2015, the last time 421-a expired. If they used those permits to build foundations by June 30, and complete construction within four years, those projects qualify for a tax exemption.
Under past versions of the 421-a tax break, developers pay zero or reduced property taxes, for up to 35 years. The law that expired in June required property owners to set aside 25% to 30% of their units for affordable housing at specified family income levels and in some cases pay union-scale wages to construction workers.
About 90% of all residential construction in the city in the last decade received either 421-a or other tax breaks, according to the NYU Furman Center, a housing think tank. Half of all income-restricted affordable apartments since 2014 were built under 421-a, according to city data.
Replacing the tax break is one of four key housing priorities on City Hall’s wish list for Albany in 2023, chief housing officer Jessica Katz said at a Citizens Budget Commission event last month. Real estate groups like the Real Estate Board of New York will also be pressing for enactment, arguing that burdensome property taxes and high costs of construction make building housing uneconomical.
Opponents such as the Legal Aid Society, Community Service Society and progressive Democrats in the legislature are expected to strongly oppose any tax break, saying it is an unneeded giveaway to well-heeled developers. The abatement program cost the city $1.8 billion in foregone property tax revenue last year — the largest tax break in the city — according to the recently released annual financial report from the city comptroller. It will be years until that number shrinks as the benefit phases out.
In the past three years, the city saw only an average of 25,000 permitted units annually. REBNY says the city needs as many as 530,000 new housing units by 2030 to meet demand and make units more affordable.
Earlier analyses on preliminary data had suggested that the surge in permits was more modest than the final data revealed. But even with the widened pipeline, it remains to be seen how many new apartments ultimately come online.
Historically between 80% and 90% of permits are finished within four years, but City Planning warns in a blog post that the number may be much lower this time:
“Limits on construction sector capacity and today’s high interest rates will likely reduce the share of recently permitted projects that can be completed within this timeline.”
The surge could have beneficial effects in the near future, say some housing analysts.
“There will be an additional supply of rental housing in the next three years than you would have seen otherwise, which should lead to higher vacancy and more options for renters in the shorter term” said Furman Center executive director Matthew Murphy. But he warns that the absence of a tax break will be reflected in slower production over time: “The longer-term pipeline of new housing is at risk.”
New York has long had an affordable housing crisis, which has become particularly acute in the past year. Climbing rents follow years of sluggish housing production; the CBC found that construction rates per capita were lower in New York than nearly every other American city in recent decades, and trailed job growth here.