I asked a developer at an event last week about the multifamily project tax break 421a, which expired in 2022. I wanted to check on a prediction I made during the previous 421a renewal debate, eight years ago, and again during the current one.
My forecast was that land prices would come down if lawmakers made clear that they would not restore the tax break.
In 2016 the Real Estate Board of New York disagreed, saying landowners would wait years if necessary for 421a to come back. In 2020 Alicia Glen, former deputy mayor for housing and economic development, agreed with me in principle, but noted that property taxes on rentals are so high that without a tax break, apartment projects would still be difficult to finance.
To an extent, we were all correct.
I was right in that bids for project sites have come down because of the risk that 421a won’t return, and if it does, it will be less generous than the previous version. But sellers have not dropped their prices much yet, because Albany is trying to pass a new version of the tax break this spring.
Meanwhile, REBNY was right about landowners holding off on making deals and rejecting low-ball offers. But lower bids will eventually mean lower prices because at some point, owners who have to sell or want to sell will take whatever they can get.
And Glen was right that high property taxes make many projects non-viable, even if land prices fall. The developer I spoke with last week said that even if he could get land for free, a rental project would not pencil out.
Could that be true? Yes, depending on the neighborhood.
A new NYU Furman Center analysis found that in low-rent areas, free land would not be enough to build a profitable rental project. The development would have to be subsidized as well. Even in high-rent areas, land prices would have to come down 30 percent for projects to be viable, the study found.
The Furman Center report is essential reading for the lawmakers negotiating a state housing package. I have a prediction about that, too: Something will get done.
I have written repeatedly about the obstacles. But legislators know it would be political malpractice to go two straight years without doing something on housing, which is the state’s most important issue and one lawmakers are asked about constantly. They would rather pass a watered-down bill than fail again.
The pieces are starting to fall into place.
Hochul made the first move by dropping her requirement for builder’s remedy, and now legislators backing “good cause eviction,” such as Sen. Julia Salazar, are increasingly broadcasting that they are amenable to compromise. Importantly, they have not made any real fuss about elements of the package to create housing, because the absurd argument that increased supply prices people out has lost credibility.
There has been a palpable change since last year, when state Sen. Liz Krueger, Assembly member Jo Ann Simon and various other lawmakers held a press conference to oppose raising the citywide floor-area ratio cap for residential properties.
Today, such a public display against new housing would trigger mockery and outrage from the growing movement in support of multifamily development. Who could be against converting half-empty office buildings to apartments amid a housing crisis?
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Vocal opponents of raising the FAR cap would be called out by Mayor Eric Adams, Open New York’s new political action committee Abundant New York, and maybe even fellow elected officials who just formed a pro-housing group.
Meanwhile, REBNY and the construction unions, after failing to compromise on 421a, have essentially told Albany to revise the tax break without them. And real estate people who oppose “good cause” could argue that a California-style policy that limits rent increases to, say, 7 percent would not stop any projects nor affect the rental market in any substantial way.
The main thing stopping legislators from a housing deal is the fear of being attacked by their own side for settling. But that is preferable to being attacked by every side for doing nothing.