City takes closer look at 421a tax incentive program.

In an effort to encourage developers to build affordable housing in areas where it is needed most, the Bloomberg administration is considering expanding its 421a program to cover most of New York City.

Created in the 1980s to encourage new residential development in Manhattan, the 421a program offers lowered taxes to developers who undertake housing projects and also set aside a number of the units for low- and middle-income families. However, several recent news reports have revealed that the program in its current form--the incentives are for the most part used for developments in Manhattan south of 96th Street--has largely lost its purpose. Residential market prices in the covered neighborhoods are now high enough to justify new projects without the added benefit of tax incentives.

According to Alexis Perrotta, senior policy analyst with the Regional Plan Association, "The 421a program has worked well over time, but it's inconsistent with a very strong market. We used to give those incentives to anyone who would build anything. What the City is thinking about doing is taking the 421a program that requires you to put in affordable units and putting that requirement everywhere. If you are going to take the tax incentives, you are going to have to include affordable housing. We are not just giving them away anymore."

Peter Fine, principal of Atlantic Development Group, whose company has created more than 2,000 units of affordable housing in the City in the past 11 years, agrees that the incentive system needs to be rethought, but he believes that the City should tread gently when it comes to the outer boroughs.

"The exclusion zone obviously needs to be corrected," he said. "The highest-priced residential real estate in New York is in Greenwich Village, Soho and Tribeca, so it doesn't make sense that those areas should qualify for tax abatements and something 20 blocks north wouldn't."

But, he notes, "I don't think [mandatory affordable housing components] should be City-wide. It would hurt development if builders in marginal areas outside Manhattan had to pay for an abatement. I think that outside of Manhattan, with the exception of downtown Brooklyn, Park Slope and Long Island City, the City has to be very careful if they require affordability because they may kill the feasibility of new construction."

According to John McIlwain, senior fellow for housing with the Urban Land Institute, "There is only so much the City can do with the tax break to make the affordable housing investment [viable]. They can encourage developers to go into marginal neighborhoods, but without additional subsidies, a lot of those neighborhoods simply aren't ready."

Plus, McIlwain believes that however hard the administration tries to keep up with the need for reasonable housing prices, the market will always outpace it.

"In my experience, the need for affordable housing is growing faster at most income levels than the capacity of any city to meet it," he noted. "The City is doing a lot and should get credit for that, but it will always be under pressure to do more."

Perrotta agrees with that assessment.

"More and more people who are making more and more money are paying too much for housing. Affordable housing is not just for the poor--it's a regional issue," she said.

That is why Perrotta believes the City should expand inclusionary zoning, a strategy that requires the creation of an affordable housing component once a developer builds a certain number of market-rate units in one neighborhood.

"I think that we need to have a City-wide conversation about this," Perrotta said. "The developments that have taken place in Greenpoint and Williamsburg are a really good start and the City should take a look at them to see where else inclusionary zoning should go."

Fine, for his part, thinks that it would also be a good idea to encourage affordable rental developments, something the City has seen less and less of in the past few years.

"What has made New York City such an incubator for new immigrants and for people coming here to start businesses and work at entry-level jobs is the availability of rental housing," he said. "These populations that are often new to the City--artistic people, graduate students, immigrant families--they can't afford to buy and they need to live in the City because it's the economic center of the tri-state area."