NYC’s 421-a Inclusionary Housing Program May Reduce Rent Burden Among Extremely and Very Low-Income Renter Households

A recent article in Housing Studies, “Inclusionary housing policy and rent burdens: evidence from New York City’s 421-a tax exemption program,” examines the impact of New York City’s inclusionary housing policy on household rent burden. In general, inclusionary housing policies encourage or require market-rate housing developments to include affordable units through tax incentives or other developer benefits. The authors found that affordability restrictions added to the 421-a program in 2008 may have helped drive down rent burdens for extremely and very low-income renter households by increasing the supply of affordable rental housing. 

The 421-a program is the largest tax expenditure program for residential properties in New York City. Established in 1971, it gives private developers of multifamily properties in New York City multi-year property tax exemptions for increases in the assessed value of new developments. In 2008, additional provisions were added requiring projects in neighborhoods designated as Geographic Exclusion Areas (GEAs) to set aside at least 20% of units as affordable to households with incomes at or below 60% of area median income (AMI). Under the program, these set-aside units must remain affordable for 35 years, and market-rate rental units in the property are also subject to rent stabilization during this time. 

The authors assessed the impact of the GEA affordability requirement by examining changes in rent burdens across New York City neighborhoods before and after its implementation in 2008. To analyze trends in rent burden across neighborhoods before and after the GEA requirement was implemented, the authors used 2002-2017 contract rent and income data from the New York City Housing Vacancy Survey (NYCHVS), a panel survey of New York City households conducted by the U.S. Census Bureau every three years. Geographic data to identify GEA neighborhoods were obtained from the NYC Department of Housing Preservation and Development. Additional data from the Census Bureau, NYC Department of City Planning, and NYU Furman Center were used as controls for the impact of additional housing programs and other socioeconomic changes over time. 

The authors found that between 2008 and 2011, the share of rent-burdened households in GEA neighborhoods (defined as sub-boroughs in which more than one percent of tax lots were designated as GEA after 2008) increased by 1.7%, while the share in non-GEA neighborhoods grew by nearly 5%; this gap persisted throughout the study period, suggesting that the 421-a affordability restrictions may play a role in reducing rent burdens in GEA neighborhoods. 

In examining these trends across income groups over time, the authors found that the share of rent burdened households in GEA neighborhoods was significantly reduced among extremely low-income (ELI, 0-30% AMI) and very low-income (VLI, 31-50% AMI) renter households. However, VLI renter households appeared to see greater reductions than ELI households. The authors speculate that this is because GEA restrictions target households at or below 60% of AMI, meaning that the affordable units created through the program were still prohibitively expensive for many ELI households. 

The authors also found that the share of rent burdened households increased significantly for moderate- (81-120% AMI) and middle-income (120-165% AMI) renter households. Upon further investigation, they found that during the study period, nine out of ten properties targeting moderate- to middle-income households were developed with the 421-a tax exemption. The authors theorize that developers found it more profitable to abandon construction projects for moderate- to middle-income properties in GEA neighborhoods that would not have been eligible for the 421-a exemption. In short – the GEA requirement may have helped increase the supply of housing for ELI and VLI households but perhaps discouraged the production of units for moderate- and middle-income households in these neighborhoods. 

The authors conclude that the 2008 changes to New York City’s 421-a program creating the GEA affordability restrictions likely helped reduce rent burdens on ELI and VLI renters by increasing the supply of affordable units in GEA neighborhoods. However, the program may have had an adverse impact on rent burdens for moderate- and middle-income renter households as development costs in GEA neighborhoods drove up market rents. The authors caution policymakers to consider these effects when designing inclusionary housing policies and encourage further research into the overall impacts of inclusionary housing programs on rental housing stock and residents’ migration patterns. 

This article can be found at: http://bit.ly/3XXAZcB.