It’s the beginning of a new regime in the White House, but federal agencies are continuing to implement real estate policies from Obama’s administration, creating new precedents and leaving many questions.
Governor Andrew Cuomo implemented a deal with trade unions and the Real Estate Board of New York (REBNY) to reestablish the 421-a tax abatement. The 421-a tax abatement is a tax exemption program established in 1971 to facilitate greater development of multi-unit residences in areas with vacant land. The scheme significantly reduces property tax for a period of ten years to incentivize real-estate growth. Developers in certain restricted areas – Geographic Exclusion Areas (GEAs) — can only utilize the tax exemption if they agree to provide a number of affordable housing units, usually 25 – 35%. Since of all Manhattan is within a GEA, the only way developers can utilize 421-a is by guaranteeing a portion of affordable housing.
The Benefits:
- Developers building multi-unit residences in vacant land will not have to pay the usual taxes for a three year construction period.
- This benefits trade unions and the real estate sector as this boosts real-estate development and the economic growth in low vacant areas.
However, this reinstated policy fuels the Airbnb problem in NYC. Owners of affordable housing in these areas who list their property on Airbnb (in spite of laws making it illegal to lease or sublet an apartment for a period less than 30 days) are partially responsible for the increase in rent prices in the City, as found by a study conducted by affordable housing advocates, who found that rent in NYC significantly increased in areas where Airbnb flourished. Democratic Assembly member Linda B. Rosenthal stated that Airbnb permits its members to “promote illegal activity that breaks New York State law, violates building and safety codes and zoning, threatens tenant safety, destabilizes our communities, and depletes our rapidly vanishing affordable housing stock.” Gov. Cuomo recently agreed to allow authorities to fine Airbnb hosts a maximum of $7,500 for breach NYC rental laws.
Developers are now able to take advantage of the tax exemptions if they promise to set aside a percentage of units for affordable housing however, if new regulations are not implemented to fix the Airbnb problem in NYC, then the issue of affordable housing will continue to exist.