A new study by the city’s Independent Budget Office alleges that the 421-a program has backfired in a major way over the past 11 years, benefitting condo buyers in the form of tax breaks but failing to produce additional housing developments. Reuters got the early scoop on the study, released today, that says the city’s squandered up to $2.8 billion through the now-defunct tax incentive program. The study included 17,000 repeat condo sales between 2005 and 2015.
The study by the non-partisan Independent Budget Office found that condo buyers in Manhattan pay on average $35,500 more for an apartment with a 421-a incentive than buyers of similar apartments without a tax break. This means buyers in Manhattan are spending on average between 53 and 61 cents for each $1 of tax savings. Outside of Manhattan, buyers pay on average $31,200 more for the tax incentive, meaning they’re spending on average between 42 and 50 cents for each $1 of tax savings.
The way this works out, condo buyers throughout the city are getting more in tax savings than they’re spending additionally to purchase an apartment under 421-a. This means roughly $2.5 to $2.8 billion in tax expenditures has been lost on 421-a recipients between 2005 and 2015. If the program were performing as it was intended to, the tax break should have encouraged additional housing development.
This fiscal year alone the city shelled out $1.2 billion in tax breaks for new condos, which take up about one third of the program, and rentals, which make up about half. The 421-a tax incentive program lapsed in January 2016, but buyers in new condos authorized before its end are still benefitting from the program. The 421-a tax program was devised in the 1970s to incentivize developers to include affordable housing in their projects by passing on a tax break.
In mid-January, Governor Cuomo sent a new 421-a replacement called Affordable New York to the state legislature for approval. The program would include an affordability timeline of 40 years on affordable units, up from 421-a’s 35-year timeline, and a tax exemption going up to 35 years. The legislature has yet to vote on the program.
Read the IBO’s study in full here.