421-a Program Expires

Protesters demand union wages at a December hearing on the Mayor’s housing plan.The 421-a housing construction subsidy, which gave an estimated $1.1 billion a year in tax breaks to developers who built new housing in New York City, expired Jan. 15 when the Real Estate Board of New York and the city’s building-trades unions couldn’t agree on what a fair wage would be for workers on buildings receiving the subsidy.

“Unfortunately, despite a good faith effort by all parties, REBNY and the Building Trades were unable to come to a final agreement on the renewal of a 421-a program that would provide good wages to construction workers across the city,” Gary LaBarbera, president of the Building and Construction Trades Council of Greater New York, said in a statement, adding thatthe unions still wanted to create “affordable housing and middle-class jobs for New Yorkers.” 

That agreement was made the condition for continuing the 421-a program as part of the political deals that renewed the state’s rent-stabilization laws last June. Now, new legislation will be required to revive the program or create a similar tax subsidy. Mayor Bill de Blasio and Gov. Andrew Cuomo have both identified that as a priority. “We’re certainly going to push hard for action in Albany,” the mayor stated at a press conference Jan. 18. The governor, at his own press conference the same day, called it “his biggest issue of concern.” The failure to reach an agreement on wages, he said, “means we right now have no affordable housing program that’s operating in the city of New York.”

Affordable-housing advocates, meanwhile, suggested that the end of 421-a would be an opportunity to create a more effective subsidy. “We’ve never particularly liked 421-a,” says Emily Goldstein, senior organizer at the Association for Neighborhood Housing Development. “It’s a lot of money for very little return.”

The subsidy was not originally intended to encourage affordable housing. When it was created in 1971, its purpose was simply to stimulate construction and counter the wave of abandonment that was beginning to devastate the city’s poorer neighborhoods. As the real-estate market revived and boomed, however, requirements that a percentage of the subsidized units be “affordable” were added, first in the 1980s, for the southern half of Manhattan, and then in 2006, for neighborhoods including all of Manhattan, Williamsburg, and Long Island City.

Those requirements didn’t reach very far. ANHD estimated that less than 9% of the about 153,000 apartments built with the tax break in the 2013-14 fiscal year were “affordable” even by the loose federal standards, in which a $3,000-a-month two-bedroom apartment can qualify as “middle-income” housing. In 2014, the Real Affordability for All coalition looked at 61 buildings constructed from 2008 to 2012 in the area encompassing downtown Brooklyn, Prospect Heights, and Park Slope that received 421-a subsidies. It found that only 6 percent of the 4,395 apartments in them rented for below market rate, and only 31 were cheap enough for a family making less than $41,000 a year.

If the program had been renewed, the affordability requirements would have been extended to the whole city. That would have almost doubled the number of “affordable” units created, from 12,400 to 24,000, and lowered the average subsidy for each one from $573,000 to $427,000, according to the mayor’s office.

“421-a failed to create enough affordable housing to justify the substantial tax breaks given to developers,” City Council Housing Committee chair Jumaane Williams said in a statement Jan. 18. “Whether it’s a new version of 421-a, or something different, New York City must have a tax incentive program that encourages developers to build real affordable housing.” That, he added, means both requiring a larger share of affordable housing and including some affordable to people who make less than $30,000 a year, as well as paying prevailing union-scale wages and providing “good jobs for local residents.”

 

Political Maze

The 421-a program was buffeted by several forces with overlapping and conflicting political agendas. The real-estate industry wanted it renewed, but without prevailing-wage or affordable-housing requirements that would damage its profitability. The building-trades unions wanted it renewed, with requirements that developers receiving the subsidy pay some form of prevailing wage. Affordable-housing advocates criticized the program for subsidizing luxury housing, but to some degree would have been willing to trade renewing it for strengthening the rent-stabilization laws, such as repealing vacancy decontrol instead of merely raising the threshold for it. 

Mayor de Blasio wanted it renewed with the affordable-housing requirements increased. His “mandatory inclusionary housing” program, which requires private developers to include below-market housing in rezoned areas they build in, uses the subsidies to help make that profitable for them. It does not require that the housing be built with union labor, and his administration’s proposal for renewing 421-a did not include a prevailing-wage requirement. 

Governor Cuomo said he supported a prevailing-wage requirement, but the New York Times reported Jan. 13 that he had nixed a deal REBNY and the unions had agreed on in late December. It would have set an unspecified minimum wage for workers on 421-a projects, opened all jobs to bidding by union contractors, and extended the program’s affordability and wage requirements to condominiums as well as rental apartments. The governor objected that the condominium requirements would have to be approved by the Legislature.

All this took place in the context of construction unions trying to stop nonunion contractors’ inroads into the industry. Union officials are very close-mouthed about speaking publicly on the issue, but some say privately that abuses by nonunion contractors—low wages, workers paid off the books, and poor safety conditions—are the affordable-housing sector’s “dirty little secret.” The result was a tentative alliance with the affordable-housing movement, marked by Gary LaBarbera’s speech at a Real Affordability for All rally in Harlem in August 2014.

Meanwhile, two ad campaigns were mudslinging the city’s building-trades unions as overpaid racists: one  by the rabidly anti-union Center for Union Facts, an anonymously funded outfit based in Washington, and the second by a group called BuildingNYC, which claimed to represent “those doing the majority of the building in NYC today, especially affordable housing.” It slammed unions as “special interests… wedded to an outmoded, and quite often discriminatory, method of doing business.” The BuildingNYC Web site does not mention which contractors or developers are members: The only contact it lists is Long Island lawyer Brad Gerstman, a lobbyist for nonunion contractors—who cohosted a fundraiser for Gov. Cuomo in January.

The city’s labor unions have been divided over Mayor de Blasio’s affordable-housing plan. The building-trades unions have criticized it for not requiring union labor. “Unfortunately, it looks like all the rezoning [work] is going to be done by nonunion workers,” Plumbers Local 1 organizer Carl Johnson said in December, after telling a City Planning Commission hearing that “the mayor’s plan doesn’t include standards for job quality.” Laborers Local 79 brought a few dozen members to that hearing, carrying “No Giveaways to Real Estate Without Real Affordability and Union Jobs” signs. But with the plan beleaguered by critics who charge that it will produce very little that working-class and poor people can realistically afford, the administration in mid-December won endorsements from four of the city’s largest unions: Local 32BJ of the Service Employees International Union, the United Federation of Teachers, the city employees’ District Council 37, and the health-care workers’ 1199SEIU. 

“We will be reaching out to the 200,000 1199SEIU members who live in New York City to make sure they understand the Mayor’s Affordable Housing Plan and how it addresses our housing crisis,” union president George Gresham said in a December statement. Helen Schaub, the union’s director of policy and legislation and a de Blasio appointee to the city Rent Guidelines Board, called the plan’s inclusionary-zoning mandate “a very important advance in housing policy” and “certainly better than anything under previous mayors.” Schaub, one of the few union officials willing to speak on the record, added that while 1199 supports the construction unions, the issues of union labor and prevailing wage are “a separate conversation.”

The city Independent Budget Office estimated in January that paying union wages would add 13 percent to the cost of constructing affordable-housing projects. At about $45,000 per apartment, it projected, that would require “roughly $2.8 billion in additional financing” to meet the mayor’s goal of 80,000 new units. 

“Whether it’s on affordable housing projects or any other type, prevailing wage is a critical component to maintaining and growing New York City’s middle class and also reducing income inequality,” Gary LaBarbera said in a statement Jan. 26. “The Building and Construction Trades will certainly continue to strongly advocate for good wages and benefits as part of any potential 421-a program in the future.”

If the 421-a program is truly defunct, says Emily Goldstein, that “is going to have a domino effect” on other affordable-housing programs. On the other hand, mayoral spokesperson Wiley Norvell says its loss won’t be catastrophic. “Last year, roughly 2,400 of the 21,000+ affordable units we financed were 421-a eligible,” he says. “There are other programs the City can lean on to provide tax exemptions, where necessary, to produce/protect affordable housing, like Article 11s and 420-c’s.”

 

A version of this article appeared in LaborPress.