City Wasted Billions Through Tax Abatement

The 421-a tax abatement, designed as a spur to develop affordable housing units, has long been derided as “welfare for developers.” A recent report by New York University’s Furman Center revealed that nearly 80 percent of the buildings that received the tax abatement contain no affordable housing units. But maybe the 421-a is actually “welfare for condo buyers.”

The New York City Independent Budget Office (IBO) has released a new report that claims the city squandered $2.5 billion to $2.8 billion in tax expenditures from 2005 to 2015, the Real Deal reports.The IBO report asserts that these dollars were wasted because condo owners receiving the benefit saved more in taxes than they paid in higher sales prices. The agency – which looked at 101,477 condo sales over 11 years – points out that Manhattan condo owners paid a mean of $35,500 more for properties with the 421-a tax abatement. The report found that Manhattan buyers paid between 53 to 61 percent of their tax benefits extra for their properties. In the outer boroughs, buyers paid a mean of $31,200 more for condos with 421-a – or 42 to 50 percent of the benefit that they are expected to receive.

The crux of the report is that the tax benefit is being passed off to the condo buyer instead of the land owner/developer, when the program is ostensibly designed to encourage development – including affordable housing units. The IBO posits that the tax abatement therefore hasn’t fulfilled its purpose and may actually raise land and housing prices.