Five Decades of (Fighting Over) 421-a

By Samuel Stein and Debipriya Chatterjee

The following is adapted from a 2022 report authored by Stein and Chatterjee for the Community Service Society of New York, entitled “421-a at 50: Rising Cost, Diminishing Returns.”

In 2021, New York’s 421-a tax exemption for new residential construction turned fifty years old. That fiscal year, it cost the city $1.7 billion in uncollected tax revenue, a larger amount than any other single New York City housing budget item. Since 1990, as far back as public data is available, the tax exemption has cost the city over $22 billion (adjusted for inflation).[1] In June of 2022, the program will expire unless it is renewed or replaced.

Many – including the Community Service Society, where the authors work – have argued that the program should be ended, not extended. 421-a was created under conditions that have nothing to do with the city’s current housing needs or real estate market. Even though the program has been rewritten several times over the last five decades, those changes failed to either rein in the program’s costs or make housing in the city more affordable to working people.

Graphic by CSS / design by Opal Lynch

421-a was created in 1971 — a dramatically different time in New York’s history in general, and in the dynamics of real estate development in particular. Mayor John Lindsay, Governor Nelson Rockefeller and legislators were concerned about diminishing private investment in New York City housing, a hollowing out of the city’s working class jobs base due to deindustrialization, and white flight to nearby suburban areas and farther flung areas of urban growth in the south and west. As a result of these forces, the rate of housing production was slowing dramatically. Whereas the years 1961 to 1962 saw 45,000 housing starts per year (including new social housing construction via NYCHA and Mitchell-Lama), the years 1968 to 1970 saw 10,000 or less per year.[2] 

The original 421-a program was a 10-year as-of-right tax break (plus three years during construction) for new multi-family residential construction. The lawmakers’ goal was to create a simple, easy to use tax exemption that would apply to all new development in order to bring down the cost of development and correct for the relatively low rent levels and sales prices a developer could expect to command in a depressed property market.

Though initial rents were supposed to be set at eighty-five percent of market rents in comparable apartments, 421-a was designed to be a general supply booster, not an affordable housing program. This, in fact, was a point of contention from the program’s beginnings.

Lindsay remarked that the purpose of the program was to serve as “an added resource to attract the middle class.” Meanwhile, groups like the New York Urban Coalition protested that “tax breaks to wealthy landlords or tenants” have “no valid or recognized public policy or necessity,” and pointed to the program’s support of projects like the high-end Olympic Tower in midtown. Three years later, Mayor Abe Beame, who followed Lindsay, pushed to renew the policy without the below-market provision, arguing that 421-a was useful specifically because it subsidized “homes that attract middle and upper middle- income taxpayers.” Indeed, a contemporaneous study found that “the residents of section 421 buildings are young, well-educated and are employed in high-paying jobs. These characteristics distinguish them from all other renters in New York City pronouncedly.”[3]

By the 1980s, development had made a comeback in New York City, particularly in Manhattan. Nevertheless, the tax break was available to anyone building any kind of multi-family housing anywhere in the city. In one famous instance in 1984, Mayor Koch tried to block Donald Trump from accessing a 421-a tax break for his Fifth Avenue Trump Tower ultra-luxury condominium project, given that Trump did not need the tax abatement for the project to succeed and it would do nothing to provide affordable housing. Koch was unable to stop the exemption, though, and Trump Tower owners were able to save $20 million in property taxes ($55.5 million today, accounting for inflation).[4]

At the same time, housing analysts warned that 421-a was inflating land prices, thus undermining the intent of the program and becoming a public benefit for landowners rather than an incentive to developers. Housing analyst George Sternlieb was quoted in The New York Times commenting, “The existence of 421-a basically raised the land costs. All these deals are penciled backwards, and 421-a made it possible for landowners to raise prices.”[5]

Graphic by CSS / design by Opal Lynch

In response to some of these criticisms, 421-a was revised in 1984 (though the changes took effect in 1987). The new version of 421-a would require developers building between 14th and 96th streets in Manhattan — the so-called Geographic Exclusion Area (GEA) — to either include affordable units on-site, or, more commonly, purchase “certificates” to finance their construction elsewhere. The value of the affordable housing being produced, however, was far lower than the value of the tax break given to the developer.

The 1984 iteration of 421-a also assumed that the city’s housing market would remain geographically stable — in other words, that rents and sales prices would remain low enough outside of “core Manhattan” that developers would need a subsidy to make their projects economically feasible. This, however, was not the case. From 1985 to 2007, when the GEA was redrawn, the city forwent hundreds of millions of dollars in tax revenue to incentivize development in areas of the city with similar or even higher profit margins than central Manhattan.[6]

In 2006, 421-a once again came under criticism for subsidizing already profitable market-rate development in gentrifying areas. As the Pratt Center for Community Development and Habitat for Humanity pointed out, the program encouraged purely market-rate development in areas the law called “neighborhood preservation zones,” resulting in unaffordable tax-subsidized housing in gentrifying areas of the city. Their review concluded that 421-a remained “a massive misuse of the tax dollars of New York City residents” that “continues to subsidize luxury homes in expensive neighborhoods.”

The next iteration of the program, passed in 2007, expanded the Geographic Exclusion Area to all of Manhattan, parts of Brooklyn and select small pockets in other parts of the city. The program contained five different options, with exemptions ranging from ten to twenty years, and affordable housing required only in the GEA. The new geographic targeting eventually came under widespread criticism as being politically determined, and still failing to align the value of the tax exemption with the value of the affordable housing it might produce.[7] The 2007 reforms ultimately produced little affordable housing, largely because developers were still able to build highly profitable, purely market rate developments outside the Geographic Exclusion Area.[8]

When 421-a next came up for renewal in 2015, New York’s building trades unions (whose members construct much of the city’s large-scale housing projects) and the Real Estate Board of New York (REBNY, the city’s chief real estate lobby) could not reach an agreement over language on wage standards. Meanwhile, groups representing tenants and working-class New Yorkers called for the program to be ended and for new tax revenue to be put toward a more effective affordable housing program.[9] With no agreement in sight, the program expired for a year.

In 2017, REBNY and the Building Trades reached an agreement, and the legislature passed a new version of 421-a that was backed by Governor Andrew Cuomo and based to some extent on legislative language offered by Mayor Bill de Blasio. Supporters of this package touted the fact that this new 421-a package would cover far fewer condominiums than rental projects, require on-site affordable housing, bar the use of “poor doors” (or separate entrances for lower-income tenants), and impose wage standards for workers in large projects in so-called “Enhanced Affordability Areas.”

But in exchange for these changes, the new 421-a program would allow for much longer (and therefore more costly) tax exemptions lasting up to thirty-five years. At the time, the city’s Department of Housing Preservation and Development estimated that changes along these lines would increase the program’s cost by twenty-two percent — the exact change we have seen in the cost of the program between Fiscal Years 2017 and 2021.[10] In terms of affordability, the new version of 421-a also took several steps backward. Five of the program’s seven options allow for “affordable housing” targeted to the richest quarter of New Yorkers — those making 130% of the Area Median Income.[11]

421-a has proven to be a woefully weak affordable housing program. As history shows, however, this result is no coincidence. 421-a’s geographic idiosyncrasies and inefficiency as an affordable housing program is a direct result of the fact that its affordability criteria were afterthoughts. Rather than producing much genuinely affordable housing, the real utility of appending affordability restrictions to 421-a was to give the program a new political justification when its original purpose — boosting a sagging property market and competing with suburban growth — no longer matched the city’s economic condition.[12]

Samuel Stein is a Senior Policy Analyst at the Community Service Society working on issues of housing affordability in New York City and State. He is a graduate of the CUNY Graduate Center’s PhD program in Earth and Environmental Sciences (geography).

Debipriya Chatterjee is the Senior Economist at the Community Service Society working on issues of economic security and labor market, with a focus on poverty and inequality in New York City and State. She has a PhD in Economics from Brown University.

[1] New York City Department of Finance Annual Reports on Tax Expenditures, 1991-2021.

[2] Waters, Thomas J. and Victor Bach. New York’s Unaffordable Housing Program. Community Service Society, 2015.

[3] Holtzman, Benjamin. The Long Crisis: New York City and the Path to Neoliberalism. Oxford University Press, USA, 2021, pg. 172.

[4] Gaiter, Dorothy J. “City Ordered to Give Abatement on Taxes to the Trump Tower.” New York Times, June 19, 1983, Section 1, p. 29

[5] Gaiter, Section 1, p. 29

[6] Waters and Bach, 2015.

[7] Cheney, Brendan. “City Analyzing 421a Plan While Advocates Call for End.” Politico NY, January 30, 2015.

[8] Waters and Bach, 2015.

[9] Waters, Tom. 2016. ”Governor Cuomo’s Flawed 421-a Proposal.” City & State’s Slant. Waters, Tom. 2017. “421-a Doesn’t Pass Cost-Benefit Test.” City & State, January 4, 2017.

[10] Dulchin, Benjamin. 2017. Understanding REBNY’s New 421-a Tax Exemption Proposal. Association for Neighborhood Housing and Development, February 8, 2017.

[11] Lander, Brad. 2021. “Let’s Use, Not Waste, $1.7 Billion for Affordable Housing.” New York Daily News, May 5, 2021.

[12] Waters and Bach, 2015.