For some background, I work in the financial services industry (actually I was recently laid off but that story is for another day) with an annual salary plus bonus of slightly over $100,000.00. I am single and have great savings. I am one of the lucky middle class Americans who can actually still save money (well that was until the unemployment notice came but again, another day another story). I have a Co-operative apartment in a suburb of New York City that is fully paid for and today worth about $160,000.00, which I purchased about 15 years ago. I know I am better off than probably 90% of all Americans and yet I still can not afford even a simple one bedroom apartment in any of these new buildings.
After seeing models for three different buildings in the Chelsea section as well as two on the Upper West Side I realized that at least for new construction that I could not find any apartment for less than $1 million dollars. For those in the Mid West that just hit the floor, I know believe me I know. If I can’t afford that and neither can almost anyone I know, who exactly is buying these apartments? Most of these buildings are actually close to being sold out. You would think that this would be a great source of property tax revenue for the city. You would be wrong.
These buildings offer ten year tax abatement under the NYC program called the 421-A Program. This program was created when NYC was in deep financial trouble in the 1970’s to give incentive to developers to create affordable housing in depressed areas. The current program allows developers to skirt the affordable housing requirement by purchasing certificates for $12,000-$15,000 per unit from other developers who are developing affordable housing in other boroughs. Affordable developers receive four or five certificates for each affordable unit they build. This sounds like a ponzi scheme gone horribly wrong, where the middle class is left holding the bag. The winners are the developers and the super rich able to afford million dollar apartments. The average loss in tax revenue on each apartment I looked at was approximately $84,000 over 10 years. If you compare the cost of the certificate ($12,000) to the loss in revenue ($84,000), the city is actually losing $72,000 on each million dollar apartment and the developer probably gaining 10-20% additional on the sales price due to the tax abatement. This has caused the average price to increase to over $1 million dollars on a one bedroom newly constructed unit. This twisting of the original intent of the program has actually cost all New Yorkers in higher rents and purchase prices.
During Mayor Bloomberg’s first term the cost of this program has skyrocketed from $130 million lost revenue in 2002 to $320 million in lost revenue in 2006 and Manhattan has become unaffordable for any new residents except the rich. Is this what we could expect from a Bloomberg Presidency? Some other statistics from the past four years:
Average tenant income was down 5.6% while average rent was up 8.7%These are just some of the statistics provided in the linked report. This program is being changed but not ended. The new requirements if passed would still allow for the abatement as long as 20% of the units are kept as affordable for low income people. What would be classified as affordable has not been determined. That does nothing to help the middle class who will still be priced out of the NYC housing market.
More than 25% of all tenants are paying more than 50% of their income on rent. That is a jump of 13%
I have lived in the NYC suburbs my whole life and in the past years the migration both north and south out of the high cost areas has been dramatic. People are now forced to commute sometimes two hours each way to employment in a city that they can no longer afford to live in. This is especially true for teachers, police and firefighters.
Imagine if those luxury buildings were actually paying taxes. The city could then afford raises for teachers who are woefully underpaid in NYC. Michael Bloomberg has been a good mayor but during his term NYC has become out of reach for a normal middle class person. Even areas like Harlem and Inwood in Manhattan are becoming unaffordable. Is this the direction we want the country to go in?
Our income disparity is growing ever wider and programs like the 421-A are contributing. This is the perfect example of a program with great intentions being co-opted by the developers at the expense of the middle class.