City's housing tax reform plan gets mixed reaction.

Legislation proposed by city council speaker Christine Quinn and endorsed by Mayor Michael Bloomberg to set 421-a tax incentive reforms in stone for 2007 is being met with mixed opinions by developers.

The legislation--which will be ratified by the end of the month--is the ultimate compromise by council members picked from a hodgepodge of suggestions by real estate professionals, politicians, and affordable housing advocates for reform of the aged tax incentive program which the mayor proposed in February 2006.

421-a was a program created in 1971 to instigate residential development throughout the city, but detractors said it was outdated and inadequate to meet the current demand for affordable homes.

The new legislation shrinks the geographical area where developers can receive tax breaks for building, unless they include 20% affordable housing in their projects. It also abolishes a certificate program used for purchasing benefits, in lieu of a $400 million affordable housing trust fund.

Some argue this version of the reform will discourage developers from building sorely needed housing in the city both now and in the next couple of decades when over 9 million people are expected to teem into the city's cramped shores.

"Historically, we have not been a city able to build market rate housing. The activity that has taken place in the past few years is welcome, but it is not enough. Two to three years of good activity is not going to address the need we have for the future and the absence of benefits will really slow things down," said Michael Slattery, head of research with the Real Estate Board of New York.

Others believe the bill is an excuse to shore up the free market. "It's a massive tax increase in housing, that's what it is. They say they are closing a loophole, but it is a loophole that has been in affect in one form or another for 20 years," said one industry source.

Supporters say any reform is good reform. "Overall, we are pleased with the compromise," said Abby Sigal, director of strategic initiatives for Enterprise, New York, an affordable housing developer.

"Having certainty around this issue, to have the Speaker and the council and the Mayor in agreement about an issue that has been so controversial, is only going to help us to be able to plan better affordable housing projects," said Abby Sigal, director of strategic initiatives for Enterprise, New York, an affordable housing developer.

Slattery, however, argues that developers will not be able to afford the land costs, construction costs and taxes to build in the expanded "exclusion zone" the areas where they can no longer receive benefits. The areas added to this zone are stretched beyond Manhattan to Harlem, DUMBO, Brooklyn Heights, Lower Manhattan, and portions of the Brooklyn/Queens waterfront.

"By expanding the exclusion zone you take away tax exemption benefits to large areas of Brooklyn and Queens where market rate housing is at best marginally profitable, and that's with benefits. Without benefits they won't be financially feasible and just won't happen," Slattery said.

Creating 20% affordable housing in : these developments to get the benefits would not pencil in either, the source said.

"80/20 housing would not work anywhere except in Manhattan. What is going to happen is that developers will stop building in other areas unless they get other subsidies and there really is not an unlimited amount of additional capital out there," he said.

Yet, the exclusion zone needed to be expanded, Sigal said.

"This is an art and not a science. Clearly the line needed to be broader than where it was, anywhere north of 96th street was not considered an exclusion zone previously and the market is strong there, it is not substantially different from the rest of the exclusion zone in Manhattan. At the same time the market is softening some and you didn't want to expand it too far," she said. The abolishment of the certificate program is bad for some developers who relied almost exclusively on them to develop affordable housing.

"The certificate program has funded over 5400 units of low income housing over the past twenty years. In the last few years over 1000 units have been funded. The program is being eliminated at a time when it has reached it's most effectiveness," Slattery said.

Sigal says that while the certificate program was a great resource, the way it was structured requiring intensive logistical coordination between an affordable housing developer and a market rate developer, left some room for improvement.

"The idea of housing a housing trust fund that is available to a larger group of developers in replacement of the certificate program makes sense to us," she said.

REBNY supports maintenance of the 80/20 program, which requires developers to designate 20% of their housing at below market rates for the future in case improvements in the economy make it feasible.

"We haven't seen a lot of 80/20 housing in the past few years, but it is an important aspect of the program to retain to the extent that they economy may improve," said Slattery.

Yet the ultimate result of the compromise could be developers who are swayed towards developing luxury properties exclusively, thus further widening the divide between rich and poor in the city, he added

"They are only going to build projects that work. If you need $1,000 per foot to make a project work and there are only a few areas where you can get those rents, that's where they are going to concentrate their efforts," Slattery said.