The Calm After the 421-a Storm

Richard Anderson, president, New York Building Congress

NEW YORK CITY—The “epic” amount of construction activity in New York City prior to the sunset of the 421-a tax abatement program has abated, with building permits down considerably from when developers were rushing to get projects in the ground to secure the tax incentive. During the 12-month period from the initial anticipated expiration of the program on July 1, 2015 through June 30 of this year, the New York City Department of Buildings authorized construction of 20,144 new units of housing in the five boroughs, a drop of 62% from the 52,618 residential permits that were issued between July 1, 2014 and June 30, 2015. The 421-a tax abatement program expired for a short time in June 2015, but was eventually extended until its expiration on Jan. 15, 2016 when the New York State Legislature could not reach a new agreement. Despite the dramatic decline in construction activity, the New York Building Congress notes that the more than 20,000 permitted units over that 12-month span is in line with the average of 19,928 residential permits authorized annually between 2005 and 2014. “New York City’s residential sector essentially experienced a perfect storm of circumstances between late 2014 through the middle of last year,” said New York Building Congress president Richard T. Anderson. “In addition to the investment community’s continued and seemingly insatiable appetite for residential projects, local developers were working furiously to get their projects fully permitted in advance of anticipated changes to the 421-a program. All of this produced an unprecedented, one-time surge in permits.” Through the first six months of 2016, the Bronx led all boroughs with 1,926 authorized units, followed by Brooklyn with 1,394 units, Queens with 1,222 units, Manhattan with 821 units, and Staten Island with 621 units. Both the Bronx and Staten Island saw an increase in the number of permitted units during the first half of the year compared to the same period in 2015, while Brooklyn, Manhattan, and Queens experienced sharp declines, according to the New York Building Congress Overall, the Bronx has accounted for nearly 32% of all permitted units in 2016, after averaging just 11% of all authorized units between 2011 and 2015. If this pace were to hold through the rest of the year, the Bronx would take the top spot for the first time since 2009 and just the second time since at least 2000. In 2015, Brooklyn was the city’s hottest borough for the fourth consecutive year, garnering a 46% market share for permitted residential units. In 2014, Kings County sported a 37% market share. Anderson, who earlier this year in described the amount of activity leading up to the expiration of 421-a as “nothing short of epic,” says, “While many observers had expected the number of permits issued post-421-a to plummet in the face of the expired benefits and as new development was absorbed, judging from the numbers, it appears that the market merely paused to catch its breath.” He adds that with the residential sector being cyclical, the “big question is what happens when the market cools, especially if an agreement can’t be reached on a successor to 421-a.” Steady gains in the US economy have resulted in net positives for the multifamily sector—will this wave continue for the foreseeable future? What’s driving development and capital flows? Join us at RealShare Apartments on October 19 & 20 for impactful information from the leaders in the National multifamily space. Learn more.