What You Need to Know About the City's Rent Regulation and Tax Break Fights

On June 15, the city's rent regulation laws and its 421a program giving tax abatements for new projects are set to expire. Gov. Andrew Cuomo's vision appears more in line with Mayor Bill de Blasio on rent regulation than on 421a. View Full Caption

DNAinfo/Colby Hamilton and DNAinfo/Jeff Mays

MANHATTAN — All eyes will be on Albany next week when the city's rent regulation laws and its 421a program giving tax abatements for new projects are set to expire.

Both programs focus on maintaining or creating affordable housing — a big issue for a city where more than 30 percent of New Yorkers spend more than half of their income on rent.

Here's a primer on what's at stake on June 15.

What is the 421a program?

The 421a tax benefit was created in the 1970s to bolster residential construction at a time when the city was struggling financially and new development was seen as risky. Over the years, the program has been altered several times.

Under the current iteration, developers receive a 25-year tax abatement for building new rental projects. Developers in Manhattan and parts of Brooklyn and Queens are required to set aside 20 percent of newly created housing for "affordable" units while developers elsewhere — roughly 84 percent of the city's landscape — can get the benefit without building any affordable units.

Condo developers also qualify for tax abatements in certain parts of the city, which gives buyers tax breaks for 10 to 25 years.

What is de Blasio calling for?

The mayor wants to get rid of the tax break for condo developers. Developers building rentals across the city would be required to set aside 25 to 30 percent of a building's units for "affordable" housing, giving them three options to target different income bands. And they would see their tax break last 35 years instead of the current 25 years.

The program is expected to double the number of affordable units built from 12,400 to more than 25,000 over the coming decade, de Blasio said.

Also, buildings would no longer be allowed to have a separate entrance for affordable housing tenants — the so-called "poor door."

De Blasio also called for a 1 percent "mansion tax " on homes between $1.75 million and $5 million.

Homes priced above that will be assessed a 1.5 percent tax on the dollar balance that's higher than $5 million.

This tax is projected to raise roughly $200 million a year to help the mayor's affordable housing plan. It would be on top of another 1 percent "mansion tax" the state collects on homes over $1 million — a tax which is not dedicated to affordable housing.

What do other stakeholders want?

The Real Estate Board of New York. the trade organization that represents developers, voiced its support of de Blasio's reforms. Though the organization has been tight-lipped about why it's supporting the mayor's vision, critics say that extending the break to 35 years will give out billions more in tax breaks to developers.

Union construction workers have been the most vocal opponents of de Blasio's plan because it does not include provisions to pay construction workers a prevailing wage.

Alicia Glen, de Blasio’s deputy mayor for housing and economic development, reportedly said that requiring that developers pay workers prevailing wages could result in 17,000 below-market apartments not getting built.

Some affordable housing groups have also criticized de Blasio's program for giving tax breaks for housing that isn't exactly "affordable." Under the mayor's plans developers, for instance, can set aside 30 percent of its units to middle-income families, which means those earning roughly $110,000 a year, or paying about $2,700 a month in rent for a 2-bedroom apartment.

Where do things stand in Albany?

Gov. Andrew Cuomo wants

to link 421a reform to prevailing wage provisions for workers — in clear conflict with the mayor. The Assembly and Senate have both introduced 421a prevailing wage bills.

It may not matter in the end.

Following the recent indictments of top legislators like former Assembly speaker Sheldon Silver and former Sen. leader Dean Skelos, some say there's heightened scrutiny of deal making in Albany and that might put any changes to 421a on hold.

Albany is on alert, as U.S. Attorney Preet Bharara has launched investigations into tax breaks that were granted to luxury developers.

Where do things stand with rent regulations?

More than 1 million New York City apartments are rent-regulated. These below-market rate units are subject to rules regarding, for instance, how much their rents can be raised each year (which will be voted on by the Rent Guidelines Board on June 24 ) and are seen as an important way to keep New York City affordable.

Rent stabilization laws last came under review in 2011 and, since then, more than 35,000 affordable units have left the system, according to city officials.

One major reason apartments exit the rent regulation system is because they are subject to something called "vacancy decontrol," which allows landlords to deregulate a unit when a tenant leaves and the rent reaches $2,500 a month, up from $2,000 a month in 2011.

A unit can also be taken out of the program if a tenant's rent reaches that $2,500 threshold and they earn $200,000 or more a year.

If the rent laws stay the same, the city estimates that 100,000 apartments might exit the system in the coming months, including nearly half of the 19,000 rent-regulated apartments in TriBeCa and Lower Manhattan, according to the Daily News.

What does De Blasio want?

De Blasio called for ending vacancy decontrol. He also wants to eliminate the 20 percent rent hike — or "vacancy bonus" — that landlords can now impose when someone moves out.

Also, to combat rent hikes due to major capital improvements landlords make when renovating buildings or individual apartments, the mayor would like to see improvement surcharges made temporary, spread out over 7 to 10 years, and then allowing the rent to reset after that.

"If [Albany doesn't] take responsibility, that tale of two cities will only deepen," de Blasio said at a rally on Saturday. "This will become more and more a gilded city — a place that only some can afford to live in — and that is not New York City."

What do other stakeholders want?

Tenant advocates have long been calling for stronger protections, especially regarding vacancy decontrol and the vacancy bonus, since they believe those factors create strong incentives for landlords to pressure tenants to leave so they can get higher rents.

Advocates also want to see limits on charges added to rents as a result of capital improvements made on buildings and in individual apartments.

The Rent Stabilization Association. the group that represents the city's landlords, opposes the mayor's plans.

Where do things stand in Albany?

This past weekend, Cuomo said — for the first time publicly — that he supports strengthening the rent laws, squelching a potential showdown with the mayor.

"We must eliminate vacancy decontrol or at the very least significantly raise vacancy decontrol thresholds," he wrote in an opinion piece in the Daily News. (He previously said he wanted to see the decontrol threshold raised to $2,700.)

He also voiced support to further limit vacancy bonuses and limit surcharges for major capital improvements, among other changes.

He even said he'd call a special session if the legislators failed to act.

The Republican-led Senate is expected to fight the proposed changes, while the Democrat-led Assembly has expressed support over strengthening the rules.

Source: www.dnainfo.com

Category: Credit

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