Schaller Consulting

• Full report (pdf format)

As Albany debates whether to act on the 421-a housing tax exemption program before it expires on June 15, 2015, a new report finds that ten to twenty thousand additional affordable apartments could be created over the next decade by taking advantage of lower land and construction costs outside of expensive Manhattan neighborhoods. These 10,000 to 20,000 apartments could be built in neighborhoods with good access to jobs, schools and neighborhood services and low crime rates, and would be on top of the 25,000 units that the de Blasio Administration projects from its proposed reforms to the tax break. Addressing the central goal of combating the effects of rising income inequality on low-income families, the report finds that an "off-site" option for Manhattan developments would better achieve equity goals by putting new housing closer to where nearly three-quarters of rent-strapped low-income New Yorkers live and increasing the number of affordable apartments available to them, thus advancing Mayor de Blasio's commitment to fighting income inequality by building affordable housing "on a grand scale."

The report also recommends that a revised 421-a program should be designed to guarantee that developers in high-rent areas such as Manhattan and western Brooklyn and Queens provide affordable apartments for very low-income and low-income. Program revisions should foreclose the possibility that developers in high-rent areas opt to serve primarily middle-income families, which would dilute the program's effectiveness in addressing income inequality.

The report also concludes that the 421-a program should not require prevailing wages for construction workers, as construction unions have proposed. Doing so would raise costs, reduce the amount of affordable housing produced, and undercut the effectiveness of the program in addressing the effects of income inequality in the city.

The 421-a program currently costs New York City $1.1 billion in foregone tax revenue for 168,600 housing units receiving tax benefits; approximately 13,000 apartments have been set-aside as affordable housing for low-income families under the current program. The de Blasio Administration proposed in early May 2015 to revise the affordable housing requirements for developers who receive the tax break and apply affordability requirements citywide. The program expires on June 15, 2015 unless renewed by the New York State Legislature.

The report was prepared as an independent analysis of the 421-a program by Bruce Schaller, Principal of Schaller Consulting, based in Brooklyn, NY. This report is the first of a series examining urban policy issues related to income and inequality in major U.S. cities.

The report's author, Bruce Schaller, has held a number of senior positions in New York City agencies, most recently serving (until May 2014) as a Deputy Commissioner at the NYC Department of Transportation. He has also held positions at the New York City Office for Economic Development, Department of Parks & Recreation, Taxi and Limousine Commission and NYC Transit.

Report released June 11, 2015