For 45 years, New York City has offered generous property-tax breaks to encourage construction of new rental housing. Since the mid-1980s, so-called 421-a abatements have been granted to developers who agree to make at least 20 percent of their new units “affordable.”

Depending on your viewpoint, the state-authorized 421-a program has evolved into an incredibly effective incentive — or an incredibly wasteful giveaway to big developers. But for most of the past year and a half, Gov. Cuomo has sought to make the program both less effective and more wasteful, by mandating the use of higher-priced unionized construction workers on 421-a projects.

When the tax-exemption law was scheduled to expire in 2015, Cuomo approved a six-month extension — with an unprecedented condition: Any further continuation of 421-a would require property developers to negotiate a wage-and-benefit deal with building trades unions.

Perhaps Cuomo assumed New York’s big developers would cave to preserve more than $1 billion in annual tax breaks in a red-hot real-estate market.

But no deal was reached, so the law lapsed almost a year ago — reportedly stalling at least some new projects and erasing an essential element of Mayor de Blasio’s affordable-housing program. It also delayed Cuomo’s own rollout of $2 billion in state funding for affordable and supportive housing.

In his misguided effort to guarantee organized labor a bigger piece of the 421-a action, Cuomo failed to consider changing conditions in New York’s construction sector.

Unionized construction workers here already have a rich wage-and-benefit package — ranging from $77 an hour for laborers to nearly $100 an hour (or more) for skilled trades. They still dominate public-sector projects in New York, thanks to a state “prevailing wage” law based on union contracts — but their high pay, costly union work rules and competitive pressures have led to steady inroads by increasingly qualified non-union and “open shop” (mixed union and non-union) contractors.

A study by the city’s Independent Budget Office indicated that extending the prevailing wage-and-benefit law to 421-a projects would boost affordable housing costs by 23 percent. City Hall estimated that mandating union wages would result in a loss of 17,000 affordable units.

Given the tradeoffs, the developers proved willing to resist the governor’s pro-union push — even at the cost of derailing a program that has yielded them billions in tax breaks while promoting construction of some 150,000 units, including 37,000 affordable units.

Cuomo has now brokered what he hopes will be a resolution. Developers agreed to pay average construction wages and benefits of $60 an hour for projects in Manhattan, and $45 an hour for projects in Queens and Brooklyn.

Those wage guidelines — seemingly pulled out of thin air — would apply to projects of 300 units or more.

The governor wants the Legislature to ratify the deal in an end-of-year special session. But assuming the lame-duck Senate and Assembly reconvene at all — which would first require them to agree on the terms of a legislative pay hike — they shouldn’t rush to rubber-stamp the 421-a deal until they get answers to some basic questions.

For starters, how much more will the expanded abatement cost the city — and who will pocket the money? While they’re at it, lawmakers should second-guess de Blasio’s dubious proposed structural “reform” of 421-a.

Instead of requiring developers to set aside affordable units in the same buildings as market-rate housing, as the mayor wants, the Legislature should consider allowing affordable-housing developers across the city to effectively “sell” tax abatements to market-rate developers in New York’s most desirable neighborhoods. This could yield nearly three times as many affordable units with no net increase in cost, the Manhattan Institute’s Howard Husock said in a study last year.

Looming behind these questions is the root problem of the city’s property-tax system, which imposes an extra burden on apartment buildings even as politicians bemoan the lack of affordable housing.

The way things are shaping up, after an essentially squandered year, it looks like “affordability” for New York taxpayers and renters alike is once again going to take a back seat to special-interest politics.

About the Author

E.J. McMahon

Edmund J. McMahon is a senior fellow at the Empire Center.

Read more by E.J. McMahon

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