As Tax Break Sunsets, Developers Rush In

Mayor Bill de Blasio may have lost some battles over his affordable-housing agenda in Albany, but the struggle has contributed to a boom in residential construction in New York City. The threatened expiration of the developers’ property-tax break known as 421-a triggered a rush to beat the deadline, creating the city’s biggest surge in building permits in seven years, according to data compiled by the U.S. Census Bureau. “You are seeing a lot of good come out of it,” said Gene Kaufman, an architect, of the rush by developers to meet the deadline. Mr. Kaufman said he shepherded three projects through the city’s Department of Buildings in time to meet the deadline. He said city developers had purchased land on the assumption that they would qualify for the tax program, and needed it to make their financial projections work. The tax abatement expired on June 15, but the state Legislature was expected to renew it for four years with only limited changes. It was designed to spur housing development, but opponents say it costs too much—more than $1 billion a year in lost tax revenue.

To qualify under the old rules, developers were required to have approved building plans and to have begun at least some construction on the project before the deadline. Permits for 5,546 apartments and houses were filed in April, the most for any month in at least four years. In May, permit activity rose further: New census data show an additional 12,555 permits were approved by the buildings department. The permits for residential units approved in those two months exceeded the total for all of 2013. In the first five months of 2015, more permits were issued than in any full year since 2008, when 33,170 permits were issued during the final months of the real-estate boom before the financial crisis. Stephen G. Kliegerman, president of Halstead Property Development Marketing, said while the market has been strong there was no other change in industry fundamentals to explain the uptick. “It is mostly a rush for the 421-a deadline,” he said. He said many last-minute projects were in traditionally weaker housing markets outside Manhattan, where developers who met the rules had been entitled to the abatement without conditions. In May, Mr. de Blasio proposed requiring rental developers to set aside up to 30% of a building for affordable housing in exchange for a tax abatement, while eliminating benefits for condominiums. The last time there was a similar surge in building permits was in 2008, just before tightening of rules in a generous version of the 421-a tax abatement was to take effect.

In June of that year, when the earlier round of benefits expired, permits were issued for 17,128 residential units, more than half the total for the entire year. More permits were issued that year than in any year since the early 1970s. But after the downturn, many of those projects stalled, and some faced foreclosure. Jamie McShane, a spokesman for the Real Estate Board of New York, an industry group, said the surge in permit activity when 421-a benefits are threatened “proves the importance of the program.” In April, many of the permits were for residential units in larger projects in Brooklyn and Manhattan. In May, many small projects won permits. Projects in Queens made up 38% of the total, followed by Brooklyn at 37% and Manhattan at 25%. Buildings-department data show that at least 25 projects were scheduled to start work under new building permits on June 15, the day the old 421-a program expired. Write to Josh Barbanel at josh.barbanel@wsj.com This article was originally published on The Wall Street Journal