The 421a program gives tax breaks to developers who construct new residential units in multiple dwelling buildings. The incentive deems new residential developments in New York City exempt from paying property taxes for 10 years if the developer builds rent-stabilized rental units.
The 421a program was created at a time when construction in New York City was dropping, and construction in the suburbs was at a high. It was designed to encourage development to remain in New York City. Even when the exodus from the City decreased, tax incentives remained. Once the housing market in New York City improved, a large portion of Manhattan became part of an exclusion zone for 421a, where the only way to get a tax reduction was to make 20% of new units affordable.
Changes to 421a
In 2008, there amendments were made to the 421a program that expanded the exclusion zone and increased the affordability requirements. The changes went into effect at the end of June 2008. As a way of avoiding these more stringent requirements, there was a substantial spike in the amount of housing unit building permits filed in the month prior to these changes.
The 421a program was set to expire in 2015; specifically, the change would take place in June, at the end of the New York City fiscal year. There was a drastic spike in the amount of housing unit building permits filed in the month before the program was set to expire.
However, New York City did not let the program expire. The City decided to extend the 421a program until the end of the calendar year. After December 31, 2015, there would be a new version of 421a with more stringent requirements for developers. Again, to avoid the rigid requirements, there was a spike in the amount of housing unit-building permits filed in the month before these changes were made. Following the expiration of 421a tax incentive, only 453 housing units were approved for construction in January of 2016 – a 94% decrease from the month before.