A Combustable Situation
The Expiration of a Key Benefit
The tax abatement program known as "421-a" expired in December 2010. This city and state legislative initiative allowed real estate developers to obtain real estate tax abatement benefits for residential developments that significantly reduced taxes of condo purchasers for as long as 25 years. Thousands of luxury residential units were constructed under this program since 1971, and both developers and purchasers benefited from the program. One of the major goals of the 421-a program, however, to create affordable housing units in addition to upscale apartments, has not been realized in any meaningful way. Taking current economic conditions into consideration, the idea of continuing benefits that help the luxury residential real estate market flourish at the expense of affordable housing is a bitter pill to swallow for those formulating government policy.
So it turns out that the rent stabilization program, that covers about 1,000,000 apartments, expires in June 2011. Although many in the real estate community look forward to the sunset of these tenant protections, the timing is not right to deregulate all rent protected apartments. But some see the expiration of the rent stabilization program and the need to renew the 421-a program as an opportunity to insure that rent protections remain. As a result, the Governor and the Legislature must balance the need for new condo construction against a continuation of rent regulation and avoid class warfare in the process.
The Battle Lines are Drawn
As outlined by Eliot Brown in a February 3rd artcile in the Wall Street Journal, Democrats in the State legislature want to tie renewal of the 421-a program to an extension of the rent regulation program. Although many in the real estate lobby are offering tepid objections to linkage between tax benefits to developers and rent protections under stabilization, based upon current economic conditions, it's highly unlikely that developers would be given a tax break, while renters would be subject to complete deregulation of rent.
The Horns of a Dilemma
It certainly isn't a reboot of the 70's in New York, but you could make the argument that there is a need for incentives to keep construction going as the city slowly exits a very scary two-year period in New York's real estate economy. Although some version of 421-a will probably be brought back, look for tenant protections to remain in place long after June 2011.
For more on the New York City's tax abatement program, see my comments in "Tax Abatements Help Out Buyers of New Properties" on NY1 with Jill Urban.
For a fascinating review of the housing stock of New York City, take a look at the 2010 Housing Supply Report, prepared by the New York City Rent Guidelines Board.