“We propose a new hybrid financing model that would combine a land value tax (LVT) and community land trusts (CLTs) to address New York’s changing fiscal environment as well as the housing needs of working families.”
The 421a tax abatement is the Hindenburg of affordable housing. Initially introduced in the 1970s to support the development of multi-family housing, 421a is now clearly an indefensible anachronism—an expensive and socially unjust subsidy for luxury developers that feeds the fires of our housing crisis. And, with proven alternatives emerging since its inception—as was the case with post-Hindenburg aerospace industry—421a can no longer be seriously justified on the grounds of efficiency or equity. Even the housing industry’s own Real Estate Board of New York reluctantly admits the 421a program has not kept up with New York’s housing needs.
New Yorkers today pay $1.77 billion annually (double the rate just 12 years ago) on 421a abatements (resulting in foregone tax revenue that must be made up by those least able to pay). Yet this sum has produced virtually no permanently affordable housing units. Since 2014, the 421a program has only resulted in 44 units renting below market rate for which a family earning $32,000 annually spends 30 percent of its income ($631 per month). That’s $4 million worth of subsidies per unit. It’s time to stop this bleeding of the public purse before the cost doubles again in an even shorter period of time.
We must act now. With each passing day, New York’s housing crisis burns out of control. An estimated 250,000 apartments in the city remain vacant as tenants cannot afford the asking rent. This represents fully 11 percent of the total supply. Moreover, these rents are increasing at twice the rate of inflation.
A basic human right has become a lottery: 93,000 applications received for 104 units of affordable housing at Essex Crossing; 80,000 for 231 units at One Flushing, etc. According to the most recent NYC Housing and Vacancy Survey by the Census Bureau, New Yorkers would have to double their average household income in order to afford New York City’s median rent of $2,750 per month. Relying on 421a to build affordable housing has clearly been a decades-long policy failure.
New York State must not only allow the 421a program to expire on June 15, but begin the transition from a fundamentally unequal development regime centered around failed programs like 421a to an innovative revenue and production model that actually meets the needs of New York’s working families. We propose a new hybrid financing model that would combine a land value tax (LVT) and community land trusts (CLTs) to address New York’s changing fiscal environment as well as the housing needs of working families.
The land value tax, first proposed by Henry George in 1879, places the burden of funding all local government services (housing, police, education, etc.) on collected land value while concurrently abolishing all other taxes on labor (income taxes) and production (business taxes). So for an individual or household in Manhattan earning $150,000, the LVT would relieve 30 percent of their income from the income tax and net them $45,000 per year. If more units of truly affordable housing were built (by local governments that could use the extra revenue from the LVT to build affordable housing), rents would naturally fall. After all, landlords’ current strong incentives to hoard vacant and underutilized land and profit from the resulting scarcity-induced speculation would be eliminated. Instead, by creating a level playing field, LVT would foster the creation of mixed-income community land trusts that could build projects whose affordable units would represent 60 percent of the total.
Community land trusts are a proven model for keeping land prices low to moderate, thereby throttling the land speculation that causes unaffordable rents to keep rising. On Manhattan’s Lower East Side, the Cooper Square Community Land Trust was established in 1994 and currently supports 21 buildings and 326 units. Tenants save by bypassing the need to finance the cost of the underlying land, which is owned by the CLT. Vermont has operated several successful CLTs (one containing 2,703 units) since 1984. In an affirmation of their success, New York City approved in 2018 a new $1.65 million fund and regulatory framework for expanding CLTs.
A comprehensive solution to build more affordable housing would use CLTs in conjunction with a focused program of regulatory reforms and zoning changes to guide, moderate, and ensure envisioned outcomes. Of the regulatory programs reviewed, the one adopted by Cambridge, Massachusetts, in October 2020, which employs a zoning overlay for 100 percent permanently affordable housing, looks best suited for New York City’s needs. Specifically, its provisions:
- Allow affordable housing providers to build more densely than market-rate developers;
- Streamline the permitting and approval process for affordable housing; and,
- Reduce development costs by allowing affordable housing providers to create new units more quickly while using public funding more effectively.
Where exactly might these CLTs be established? There are about 10,000 vacant residential properties in NYC and, since the pandemic, 200 of the city’s 700 hotels have become available (some 60 of these hotels were converted to temporary emergency shelters for 9,500 unhoused New Yorkers). In addition, 17 percent of office buildings are vacant, and vacancy rates of 40 percent are not uncommon in office buildings still considered occupied, some due to a surge in remote work schedules.
In other words, there is no shortage of locations where a CLT can make a difference. Municipalities could own the land in a CLT, or the land could be transferred (through foreclosure or eminent domain) to qualified CLTs that are proven producers of affordable housing.
These examples of existing, successful alternative models for financing and building affordable housing clearly demonstrate their potential for large municipalities like New York City. Let’s follow the recommendation of the New York City Advisory Commission on Property Tax Reform to end 421a and set Dec. 31, 2022 as the deadline to achieve Structural Property Tax Reform, including a zoning overlay program resembling that of Cambridge, Massachusetts.
We need to ground the 421a Hindenburg before it balloons into an epic conflagration that completely wrecks New York’s housing market and fiscal stability. Instead, let’s transition to a more equitable and efficient model based on the land value tax and community land trusts.
John Choe is executive director of the Greater Flushing Chamber of Commerce and trustee of the Henry George School of Social Science. Marty Rowland is a trustee and instructor at the Henry George School of Social Science.