This note discusses Section 421-a of the Real Property Tax Law in New York, which awards a tax exemption to building owners who construct new multi-family housing units under certain conditions. The stated purpose of the statute is to provide safe, habitable dwellings in New York City. This note examines whether 421-a should remain applicable to all multi-family dwellings, including luxury buildings. The author argues that the present standards for granting exemptions represent an inefficient use of tax dollars and that the legislature should limit its application to

Page 1 of 51 ABSTRACT New York City’s largest tax expenditure, the 421-a partial tax exemption for multi-unit housing, is set to expire on June 15, 2015, sparking heated debates about whether to renew, modify, or cancel the program. Originally conceived 44 years ago as a way to incentivize development during a period of inner-city disinvestment, the program’s effects and relevance are being called into question in what is now one of the hottest residential real estate markets worldwide. Despite a series of reforms which aimed to add a component of affordable housing to the program, critics feel that it is ineffective as an affordable housing program, and unnecessary as a developer incentive. This paper will study the current distribution of subsidy recipients in order to determine who is receiving the benefit at a broader scale, and then further focus on the effect of the tax exemption on recent condominium sales in two neighborhoods with distinctly different characteristics: Manhattan’s Upper West Side between 59th and 79th Streets, and Morrisania/ Longwood in the Bronx. These studies will take a close look at the level of benefit to developers, as well as nondevelopers who are able to recognize the value of the subsidy, and whether they could be considered the intended beneficiaries of the program.

background or methods

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Targeting Tax Dollars More Efficiently: Proposed Modifications to the 421-a Real Property Tax Exemption

Beneficiaries of New York City's 421-a Tax Exemption Program

Recently, many cities have proposed property tax incentives on new construction to counteract rising rents. However, to date, there is little empirical evidence on their local effects. This paper uses a natural experiment in New York City to estimate the local effects of new tax-exempt residential construction. In 2006, the city government decided to make property tax incentives on new construction less generous, but only starting in 2008. Developers rushed to build and claim incentives before the deadline in response. I instrument the number of new units developed within 150 meters from a rental building by the baseline number of vacant parcels available within the same distance. Using a new dataset of rents and investment at the level of a building, I find that the existing rental buildingâs rent increased by 2.3% in response to an additional tax-exempt unit built within a 150 meters radius. I provide evidence consistent with the hypothesis that new residential investment rendered neighborhoods more desirable by attracting affluent households and facilitating the entry of businesses and consumption amenities. Overall, the results indicate that tax-exempt new construction spurred gentrification.

Do Property Tax Incentives for New Construction Spur Gentrification? Evidence from New York City

/pdf/targeting-tax-dollars-more-efficiently-proposed-2ea0xx8tmi.pdf

Targeting Tax Dollars More Efficiently: Proposed Modifications to the 421-a Real Property Tax Exemption

Citations

Beneficiaries of New York City's 421-a Tax Exemption Program

Do Property Tax Incentives for New Construction Spur Gentrification? Evidence from New York City

References

Beneficiaries of New York City's 421-a Tax Exemption Program

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