Establishes a real property tax exemption for converted multiple dwellings in cities having a population of one million or more

Summary of provisions

This bill extends the 421-a partial tax exemption program for a period of 4 years. The legislation extends the construction period benefit from 36 months to 72 months, but only for projects that have been stalled and commenced prior to July 1, 2009. The bill grant tax exemption benefits for projects that convert buildings from commercial use to residential use. The bill would authorize a tax exemption for owners of 421-a projects that commit to preserving 20% of their building units as affordable housing for a 30 year period.

Justification

The 421-a partial tax exemption program has been a crucial and necessary aspect of new housing development in New York City. The program and the economic activity it generated were instrumental in the surge of new housing development from 2000 to 2008, both market rate and affordable; in the robust employment in the construction industry; and in the rise in city and state tax revenue.

The program helped to offset high construction costs and land prices as well as the exorbitant tax burdens on new residential construction. It has been an important inducement for major capital investment in hous- ing.

The significant reduction in the programs benefits enacted to 421-a in 2007 combined with the national recession and financial crisis has dramatically reduced housing production, employment and tax revenue.

Between 2000 and 2008 New York City completed construction of more than 168,000 units for an average annual of almost 18,750, the highest annual average in four decades. In fact, the more than 26,000 units completed at the height of the market was the highest annual total since 1966.

This surge in housing development was aided by the availability of as-of right tax benefits in virtually all parts of the city. With the intro- duction of the negotiable certificate program which provided tax exemptions for the development of low-income housing citywide in the 1980s and twenty year tax benefit for 80/20 projects which provided low income housing on-site in the early 1990s, the 421 a program became an important tool in the creation of affordable housing as well. (At its

peak the negotiable certificate program was creating 2000 privately built, low income units a year.)

This new residential development has produced enormous economic and fiscal benefits for our city. During this surge in new development the annual average of completed units created direct and indirect approxi- mately 55,000 construction jobs; $270 million in tax revenue (exclusive of property taxes); $14 billion in wages; and $11 billion in economic activity. At the same time, this new construction activity was driving up city transaction (mortgage recording and transfer) taxes from approx- imately $890 million in 2000 to $13 billion at its high point in 2007. It was this significant and sustained housing production that in part accounted for a growth of construction employment from 101,000 to 133,000 between 1998 and 2008.

New housing construction is virtually non-existent since the last quar- ter of 2008 with the onset of the financial crisis and the recession which hit New York later than other parts of the country. In 2009 the city issued new housing permits for approximately 6,000 units. Through the first three quarters of 2010, the city issued about 4,440 permits, putting us on a pace for 6,000 for the year. In comparison, in June 2008 the last month for projects to vest benefits before the amendments to 421-a enacted in 2007 took effect, the city issued permits for more than 17,000 units. Unfortunately, almost all these projects have been stalled due to a lack of financing. The 421-a tax exemption benefits have been integral for the construction of new housing of all types and are essen- tial for a high tax and high cost building environment in New York City.

These benefits must be extended to provide assurance to lenders and builders that this necessary exemption is available.

However, we can jumpstart housing production to create jobs and addi- tional tax revenue. The amendment to extend the construction period benefit for an additional 36 months for those projects that are stalled due to lack of financing would provide the catalyst. These stalled projects have plans and building permits in hand. They can only receive the financing required to proceed if lenders know that these projects receive without diminution the tax exemption benefits available when they commenced.

Another method to jumpstart housing production is to encourage the conversion of nonproductive commercial space to residential use The 421(g) program revitalized Lower Manhattan by transforming obsolete commercial buildings into new residential units. There are similar buildings throughout the city that with the aid of this tax exemption program would create jobs, generate tax revenue and improve the quality of life of neighborhoods Given the demand for affordable housing and the cost and difficulty to produce new affordable housing, the bill contains an amendment that would give the owner of a 421-a 80/20 project the option to keep the low income units affordable and in rent stabilization in exchange for a shelter rent limit on the building's taxes. Presently, the requirement to keep the low income units affordable under rent regu-

lations ends generally when the tax exemption benefit expires. This proposed shelter rent limit on the taxes paid by the project would be at 20 percent of the building's gross income. These amendments would have an immediate beneficial impact on new housing production, job creation and on city and state revenue as well as the preservation of affordable housing.

Legislative history

New Bill.

Fiscal implications

None.

Effective date

This act shall take effect immediately.