Re-examining the Need for 421-a Subsidies
While we weren’t down with their methods, the folks from ACORN who stormed the Beacon in Dumbo a couple of weeks ago did have a point: It’s kinda silly that development subsidies put in place to stimulate building in the depths of the seventies market funk are still being used to put up luxury condos…
While we weren’t down with their methods, the folks from ACORN who stormed the Beacon in Dumbo a couple of weeks ago did have a point: It’s kinda silly that development subsidies put in place to stimulate building in the depths of the seventies market funk are still being used to put up luxury condos in fancy neighborhoods in the biggest real estate bull market ever. Ariella Cohen digs a little deeper on the subject in this week’s Brooklyn Papers and finds that, in addition to the Beacon (which she reveals is 75% sold!), there are another 28 buildings currently in construction in the borough’s more upscale nabes that are benefiting from the same 15-year tax break. Except for the recently rezoned Williamsburg and Greenpoint waterfront, these subsidies carry no requirement to include affordable housing.
Dated Perks Subsidize Luxury Condos [Brooklyn Papers]
iceberg,
Here’s a blog you might like, I follow this one sometimes:
http://cafehayek.typepad.com/hayek/
iceberg,
This is Toll’s first forray into NYC. IMHO, they knew about 1,2,3. The difficulty of doing business here is what has kept them out (#1).
I think they are getting in now because they are fearing a slow down and want to diversify their buisiness.
The car analogy above is pretty good. But now ask yourself why big companies like Toll Brothers that build nationwide a lot of middle-upper middle housing do not participate here? And why don’t they only build ultra-lux in the rest of the US?
My understanding of how property taxes work in NYC is that old properties usually have much lower taxes than new ones. The city taxes based on what the value of the building was years ago rather than its current value. But for new construction they can tax based on the current value of the building. 421(a) is supposed to help reverse this problem by reducing the taxes for the first few years. When the 421(a) exemption is over, hopefully property values will have risen enough that the taxes will still be low.
I think they should lower taxes on new construction to be more in line with old construction AND get rid of 421(a).
“Somehow, cities around the world have developed housing at all levels for all incomes” – maybe that warrants more study before you assume anything. Developers build to maximize profit- if they have a choice between building luxury or affordable, which do you think they’ll go for? No matter what the rules. They are businessmen, first and foremost.
NYC is unique and wonderful and has a phenomenal history. It’s what makes the city great. And those who forget history are condemned to repeat it.
The fact is that the 421-a program is effectively a subsidy for the rich. New development is going up all over the city in every vacant lot. The scope of demand in NYC is such that development will continue, with or without these subisidies. Having artificially low taxes on new development simply raises the asking price for that development, giving a windfall to the builders. The subsidy should be done away with.
David,
I agree w/you that the 421a is a perfect example of a bad program. But, NYC is unique in having so many bad housing related regs. Killing 421a is a start, but just a start.
You only have to take walk down any avenue in Manhattan or Brooklyn and you will see and endless array of buildings that in any other city would be torn down (if in a similar area) and built up or better.
Developers build housing for those who will buy or rent. They will do so as long as they can make a profit. If we make it more expensive to build, you set the threshold higher for what is profitable. These rules have made it only profitable to build for the relatively well off. I would hope that everyone would agree that a developer would build anything they can make a buck on – and there is no reason why they wouldn’t build lower income housing if they could.
There are plenty of cheaper areas near NYC. Jersey city, Bronx, etc. In the rest of the country, in middle and lower income areas like this developers do create housing that is marketed towards lower and middle income people – which doesn’t happen here.
Somehow, cities around the world have developed housing at all levels for all incomes. I’m not sure why we need laws now to do so, especially when (if you think them through and/or look at the accumulated evidence) they produce the opposite result.
Josh isnt the 421a program exactly the kind of government intervention that has so skewed our RE market.
I am certainly not saying that its elimination will even dent the problem but to be consistent should you be advocating its elimination – and maybe you are and your just opposing a change to an “affordable housing”-421a program like Manhattan – not sure.
That being said Smith St Hipster has a great point about the timing of any change over. Histories lessons about Govt horrible use of monetary/fiscal policy to regulate the buisness cycle should be our guide.