Developers' Incentives: Now With More Caveats

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It's official: With a few strokes of Gov. Spitzer's pen, New York City's 421-a regulations were rewritten so the developer incentive program promotes affordable housing in all five boroughs and demands mixed-income housing. On Friday Spitzer announced that he had signed the bills reforming the city-run, state-governed 421-a program, and it signaled a wrap to over a year of reform efforts by city officials and housing advocates and to a summer of political wrangling in Albany. State legislators have promised that the three bills, which the governor actually signed Aug. 15, soon will be joined by a fourth bill that fixes what NYC officials saw as problems with the 421-a state legislation.

The 421-a program operates on a scale to rival programs such as the state's Mitchell-Lama developer incentives: 421-a has figured in the construction of more than 110,000 apartments in the city since its inception nearly 40 years ago, according to the governor's office. It’s a tax abatement program that exempts developers from paying, for a decade or longer, the substantial increases in taxes that result from building on a vacant lot or improving an existing building. The program, created in 1971 to encourage residential building of any kind during the city's fiscal crisis that decade, was reformed in the 1980s to limit the givebacks to developers.

Even with the earlier reforms, 421-a required developers to build affordable housing only if they were getting the 421-a tax break for developments in Manhattan between Houston Street and 96th Street, or on one section of the Brooklyn waterfront. Brooklyn, Queens and the Bronx saw rents rise in recent years, but the affordable housing requirements did not apply to them.

And developers weren't required to have affordable units in their buildings, meaning the lower-rent units could go into a different building or even a different neighborhood – contributing to gentrification. So in February Mayor Bloomberg convened a task force, and in December the city council passed a law making major changes to the 421-a program, including forcing developers to put the affordable housing on-site and increasing the number of neighborhoods where affordable housing is required for 421-a.

Since 421-a is part of state law, City Council sent its bill to Albany for approval. After political maneuvering by state and city officials and development lobbyists, the final bills emerged.

The Albany and City Hall reforms mean a number of dramatic changes to the law. The state legislature's language also means special provisions for Atlantic Yards, the enormous residential and commercial development under way in Brooklyn. The highlights of those changes and provisions:

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