What Albany Needs to Do to Help the Real Estate Recovery
New York’s recovery from the worst economic crisis since the Great Depression has been slow. Though monthly job growth has been positive, unemployment is about 30 percent for the city’s construction industry. A more robust recovery with meaningful job growth will require more private sector capital investment. This capital investment is stalled due to uncertainty about the future of critical economic development programs and the discord regarding rent-regulation legislation.
To promote economic recovery and job growth through capital investment, Albany must renew the 421-a partial tax exemption program, the Industrial and Commercial Abatement Program, the J-51 program, the transfer tax reduction for sales to REITs, and extend rent stabilization as close to the existing law as possible.
Albany needs to act promptly and send a clear, strong signal to the business community and the real estate industry that New York encourages private-sector capital investment and that it is serious about creating more construction jobs.
The expiration of 421-a, a partial tax exemption program for new residential construction, has stalled six 80/20 projects. These comprise more than $1 billion in capital investment, 9,600 construction-related and building service worker jobs and 600 units of affordable housing. Other large-scale residential projects throughout the city are stalled, and the industry anxiously awaits the renewal of this critical incentive for new housing construction.
As part of 421-a, we have proposed an amendment that would permanently preserve the 20 percent low-income units in these buildings in exchange for lowering the real property tax burden on these rental properties to 20 percent of gross income from an unsustainable level of 33 percent.
Even at this lower level, the real property tax burden for owners would be higher than that of comparable properties in most other major cities around the country. To further encourage private-sector capital investment in housing we need to restore 421-a benefits to high-density (FAR 15) districts and extend these benefits to conversions of commercial properties to residential use.
The Industrial and Commercial Abatement Program (ICAP) also expired in February 2011. ICAP has played an invaluable part in encouraging development in the boroughs’ and Upper Manhattan’s commercial districts. Without this program, projects in these areas would not be economically feasible, and the construction and permanent jobs they create would be lost.
At the end of the year, the J-51 program expires. This program, which provides a financial incentive for upgrading our aging housing stock, has encouraged the renovation of housing for all income groups throughout the city. However, J-51 requires that the capital project be completed by the expiration of the program. As a result, many major capital improvements have been delayed as owners wait to see if the program will be extended, further curtailing job-generating investment.
The transfer tax reduction for sale of property to a REIT, which is scheduled to expire in September 2011, has facilitated numerous sales since its enactment in the mid-1990s. This provision has attracted substantial capital to New York for acquisition and job-generating building improvements. As our economy struggles to recover, we need to provide stability and confidence by renewing this capital investment incentive.
The reforms in the rent-regulation system that began in 1993 have improved the quality of our housing stock, preserved rental housing and attracted national residential owners to invest in New York.
Based on the most recent HPD Housing and Vacancy Survey, the quality of our city’s housing stock is the best it has been since 1965, when housing conditions were first surveyed. The introduction of vacancy and luxury decontrol and reasonable rent increases for capital improvements has led residential building owners to maintain their residential property as rentals instead of converting them to condominium or co-operative ownership. In addition, these reforms have encouraged major national residential property owners to begin investing in New York.
The Legislature must also adopt a fair and workable remedy for the chaos created by the J-51 Roberts Court of Appeals decision. Properties affected by this decision are unable to secure financing and to embark on capital improvements given the uncertainty about apartment rent and the potential for litigation that is emerging from this decision.
The reforms enacted in the rent-regulation system have been good for our housing stock and for the quality of life in New York City. We must vigorously oppose legislation passed in the Assembly that would return us to the 1970s, when regulated apartment rents could neither support necessary capital improvements nor sustain basic building operating expenses.
We cannot legislate ourselves back to a time when abandoned housing dotted our urban landscape. We need to extend the current system and address the impact that the Roberts decision has had on our housing market.
Our priority in Albany is to support legislation that promotes capital investment, not discourages it. For our city to create jobs, generate tax revenue and provide for the fundamental needs of our residents, we must create the climate and opportunity that will attract the capital our city needs to continuously rebuild itself.
Steven Spinola is president of the Real Estate Board of New York.