Independent Budget Office Finds Inefficiencies in 421-a Program
The Independent Budget Office of the City of New York (IBO) recently issued a report that found the 421-a program was especially inefficient compared to the average tax break. It found the 421a program to be the city’s largest tax expenditure at $1.4 billion this fiscal year due to benefits that were approved and locked in prior to the program’s suspension. The now lapsed 421-a program was designed to lower developers' costs to help make more new apartment projects feasible in the city.
But a report by the Independent Budget Office found that condo buyers were a big unintended beneficiary of 421-a. The IBO suggests that this portion of the policy was far too generous and the benefits of the program could be reduced and better-targeted. They compared more than 17,000 repeat condo sales from 2005 through 2015. Among the key findings based on this analysis:
- Condo buyers in Manhattan pay on average $35,500 more for an apartment with a 421-a benefit than buyers of similar units without the tax break. Condo buyers in the other boroughs pay on average $31,200 more for units with the 421-a benefit.
- Because of the higher purchase prices for condos receiving 421-a benefits, owners in Manhattan spend on average 53 cents to 61 cents for each $1 of tax savings. Condo owners in the rest of the city spend on average 42 cents to 50 cents for each $1 of tax savings.
- Owners of condos receiving 421-a benefits get more in tax savings than they are spending in higher purchase prices. As a result, the city “wasted” a total of roughly $2.5 billion to $2.8 billion in tax expenditures in 2005 through 2015 by providing tax relief to owners as opposed to encouraging additional housing development—the program’s intended purpose.