Dive Brief:
- The New York City Department of Buildings issued only 453 residential construction permits in January — 94% less than the 7,781 issued before the 421-a tax break expired at the end of December, The Real Deal reported.
- Applications for construction permits dropped as well, with January’s numbers falling to the lowest level in at least a year.
- The January number of permits dropped so severely that it fell lower than the monthly average during 2009 — the weakest year for permits due to the financial crisis.
Dive Insight:
The New York State Assembly first passed the 421-a tax incentive in order to give developers significant tax breaks to build new residential buildings. The 421-a program came to an end, at least for the time being, when the Real Estate Board of New York and the Building and Construction Trades Council of Greater New York could not agree on the prevailing wage provisions required for its extension.
Attorney Alvin Schein told The Real Deal that a drop in the construction of rental units is to be expected if there is no tax break. "Developers aren’t going forward with plans until there’s some type of tax exemption to make rentals feasible," he said.
That outlook is common among developers who say without a tax break, there’s nothing keeping them from taking advantage of the high-priced condo market and building accordingly.
New York City Mayor Bill de Blasio’s plan for 80,000 units of affordable housing hit a snag earlier this year when the city’s independent budget office (IBO) reported that if developers were forced to pay workers at the prevailing-wage level, it would add 13% to the plan's budget over 10 years. That translated to a total of $2.8 billion, or an extra $45,000 for each of the 69,000 units.
Union leaders were quick to blame the IBO’s methodology, saying the $2.8 billion figure was incorrect. In October, they struck their own deal with the New York City Comptroller and public housing advocates on a $150 million investment in a $1 billion AFL-CIO Housing Investment Trust (HIT) plan.
