421a Stinks, Here's a Better Use of Taxpayer Money for Affordable Housing

 Community Land Trusts to the rescue? (bedford+bowery)

Community Land Trusts to the rescue? (bedford+bowery)

This week, the Independent Budget Office of New York released a damning report on the impact of the 421a tax program. It argues that over the last 11 years, $2.5-$2.8 billion of taxpayer money has been effectively wasted.  Far from encouraging more affordable development, which has been its main justification, the policy has rewarded condo owners and developers (particularly in Manhattan) with significant tax relief. 

In case you haven’t heard, NYC is in the midst of a massive affordable housing and homeless crisis. Rather than simply rebrand 421a, which is what the governor is proposing, and continue to throw taxpayer money away, we need to examine new ideas that can actually address this crisis full on.  Luckily, NYC Housing Preservation and Development (HPD) is potentially doing that by exploring Community Land Trusts.

421a has long been criticized for being an incredibly expensive and inefficient affordable housing policy, but the simple truth is that it was never an affordable housing policy. 421a was designed in 1971 during the Bad Old Days to promote development, not affordable housing.  Those goals are not mutually exclusive, but they are not one and the same. The checkered history of 421a shows that.

Originally, the policy gave a 10-year property tax rebate on any new housing development on vacant or ‘underutilized’ land.  After Trump Tower received millions from the program to construct exclusively high-end housing, Mayor Koch revamped the policy in 1985.  It then required any housing development using the program in central Manhattan (but not outside) to provide a certain percentage of affordable housing.  The policy has gone through various iterations and lapsed enforcement since, raising the cost of the subsidy while providing vanishingly small amounts of affordable units.  Given this complacency, the Governor’s revamped 421a plan "Affordable New York Housing Program" would cost taxpayers $400k-$600k per unit and apparently that’s OK.  It’s not and this thinking is not sustainable.

The point here isn’t to keep harping on 421a (or on using tax money to promote development in general). It’s to demonstrate two things. First, that focusing on development first, affordable housing second, has failed spectacularly in addressing the affordable housing crisis.  That much is pretty clear at this point.

Second, it is to show that there are existing models that focus on affordable housing first that are much more cost-effective, community-based, and sustainable.  One of those models, Community Land Trusts, is finally getting looked at seriously in New York City thanks to HPD

Community Land Trusts (CLT) have been around for decades, most successfully in Burlington, Vermont (started when Bernie Sanders was mayor).  The basic concept is very simple – remove the value of land from the value of the dwelling. When a CLT buys a house or building, it puts the land in a trust that removes it permanently from the private market. This of course removes the speculative possibility of the land, which is the main variable in real estate deals.  (It’s why Stuyvesant Town, where I live, got bought for $5.3 billion even though the buildings are 70+ years old and showing it. The 86 acres in the heart of Manhattan is what Blackstone paid for. The tax breaks are a cherry on top.)

HPD, after meeting with community groups like the New Economy Project, the NYC Community Land Initiativehas issued a request for economic interest (FREI) to groups that are interested in forming CLTs in the city.  As reported by NextCity, a group of residents formed the East Harlem-El Barrio CLT to take part in the first wave.  The FREI is a modest proposal to see if a CLT can “improve upon, or fill in the gaps of” existing city programs, but it is a signal that the city is at least looking at CLTs.  It remains to be seen how much HPD understands the model or how committed it would be to pursuing it, but residents and developers alike should welcome this move. 

Community Land Trusts could be a much better use of taxpayer money to address the affordable housing crisis because after the initial investment of acquiring the land, the model is self-sustaining.  A trust controlled by a diverse board of interests still collects rents, it can still do major capital improvements and pass along some of the cost to tenants, and it can even offer transferable equity to residents in co-ops or condos in certain cases. Again, this model already exists and has worked in many cities (including Cooper Square, the first and so far only CLT in NYC, which has been around for decades.)

421a cost taxpayers an estimated $1.2 billion this fiscal year alone. For a fraction of that, the city could purchase foreclosed properties or neglected properties and transfer them into either a publicly administered trust or to private non-profit trusts like East Harlem-El Barrio.  Almost instantly, the city would create thousands of sustainable affordable housing units that wouldn’t require anywhere near the level of operating support currently wasted on 421a and other property tax programs.

This policy might seem like anathema to the real estate dominated political interests of the city, but it shouldn’t.  NYC is an incredibly large city with a lot of property.  Even a large presence of CLTs wouldn’t impact this landscape.

If anything, supporting CLTs would presumably remove the cumbersome requirements of affordable housing that drives up costs for developers.  By creating a separate, robust affordable housing policy, lawmakers could reform current development policies to encourage other priorities, such as mixed-use or transit-oriented development that would allow developers to maximize a development’s potential. Perhaps a developer could receive FAR bonuses or tax breaks by supporting a CLT by providing capital or professional services.

To address the affordable housing and homeless crisis, New York City needs to explore every possible idea out there.  Building new, large public housing developments will never happen again politically. Relying on the private market has made the problem worse economically.  Ungodly amounts of taxpayer money are being wasted every year on poorly designed tax, rent, land-use, and occupancy policies.  Community Land Trusts aren’t the silver bullet to address these seemingly intractable problems, but by supporting them, perhaps we can create space to finally explore truly innovative ideas from the public and private sectors alike.