As the fallout from Donald Trump’s victory in the recent presidential campaign continues to grow, many will have missed the reintroduction of an important property tax break in New York. Union leaders and real estate investors have managed to renegotiate a tax break, known as 421-a, which expired earlier this year without an extended agreement. Many will not have heard of the 421-a tax break but it is significant for all parties, developers to workers, and will ensure more affordable housing in New York and surrounding areas.
What is the 421-a property tax break?
In simple terms this property tax break has been used to encourage the building of multi-unit properties on vacant land in pre-specified areas of New York. This ensures that costs are kept to a minimum and encourages investors to look at areas which may have been off their radar under normal circumstances. A previous deal expired in January 2016 when the Real Estate Board of New York and the Building and Construction Trades Council of Greater New York could not come to an agreement to extend the deal.
There had been concerns for employee protection as well as the need to incentivise investors to redevelop these vacant areas. Thankfully an agreement has been reached which will help to roll out an array of affordable housing.
Under the deal those working on construction developments in Manhattan, South of 96th Street, where there are 300+ rental units will be guaranteed an hourly rate of $60 which includes benefits. Those working in other areas such as Queens and Brooklyn would be guaranteed a rate of $45 an hour which also includes benefits. In an incentive to create more affordable housing there is the opportunity to opt out of guaranteed hourly rates where more than 50% of the units would be sold for less than the going market rate. The idea is to offset the guarantee of a predetermined hourly rate against the building of affordable properties – made available to those struggling to climb aboard the property ladder.
Sensible interaction between unions and investors
It is not very often we see unions coming to sensible arrangements with capitalist investors but the reintroduction of the 421-a bill will help all concerned. There will need to be some kind of monitoring system to ensure all parties abide by the agreement. While the bill has yet to be rubberstamped this is nothing but a formality due to the wide ranging terms of the agreement. There is also speculation it could be rolled out to many other areas of the US which would help to support the US real estate market.
This comes at a good time for the US property market which is finding it difficult to come to terms with life under Donald Trump although many believe there are some significant long-term benefits. Affordable housing is a problem not only in New York but around the world and an issue which blights the worldwide real estate market. It is difficult for governments to find a balance between encouraging more development projects and maintaining property values going forward.