The Corruption of NYC Affordable Housing

The Corruption of NYC Affordable Housing

Sheldon Silver, the New York State Assembly's speaker for the past 21 years, was indicted last month for taking millions in kickbacks from the real-estate lobby, among other special interests. These allegations, if true, reveal a dark truth for Democratic voters -- and not just that they have been supporting a crook: Silver, whose district resides at the southern tip of Manhattan and contains neighborhoods both rich and poor, repaid his constituents for two decades of reelection by corrupting the NYC real-estate market with unnecessary tax subsidies.

According to the federal complaint against Silver, he is accused of taking approximately $4 million in kickbacks, most of it from real-estate interests, in exchange for granting favors via the assembly's role in two development programs -- 421-a and 80/20. 421-a provides substantial tax exemptions for developers that create new residential buildings and reserve 20 percent of the units for affordable housing, or that, in lieu of creating affordable housing on-site, create it elsewhere or buy "certificates" from other developers that do. The 80/20 program similarly offers tax-exempt financing and credits to new residential developments that make available 20 percent of the on-site units at an affordable rent for a negotiated period of time.

These programs began in the 1960s and 1970s and at first may have seemed like a typical progressive plan to help the poor. But recently, they have mainly done the opposite. Today, the programs do encourage some affordable-housing growth in the city's outer boroughs, but they do so at the cost of spurring the growth of high-income housing in the areas where rents -- and the threat of gentrification -- are already highest. This pushes the poor and middle class out of their homes, a problem that has been especially pronounced with 421-a.

As the New York City population -- and thus the demand for housing -- skyrocketed over the past decade or so, developers began using the credits to subsidize their luxury buildings with credits from elsewhere. According to the New York Observer, "outer-borough builders earn four or five certificates for each unit of affordable housing they produce, and then sell the paper for $12,000 to $20,000 each to Manhattan developers to qualify for 10-year tax abatements on market-rate condos and rentals." Consequently, government-subsidized condominiums popped up in Manhattan and Brooklyn -- at a time when rents in New York were rising much faster than rents in the rest of the country.

Between 2004 and 2014, the number of properties given 421-a tax breaks tripled, and the gentrification debate in New York drew national attention. While gentrification is an expected process in city growth, in this case government intervention caused prices in the market to rise beyond what they should have been -- and quickly. The programs greatly reduced the cost of generating newer housing, with more amenities, at increased rents, in the most desirable areas of the city.

By the mid-2000s, Democratic leaders in the city knew that the programs were being used to gentrify large swaths of Brooklyn, Manhattan, and Queens. Just last year, leaders in the city were calling it a "debacle" for affordable housing, yet the Democratic state assembly did nothing to change the law. In fact, they renewed 421-a in 2007 and 2011 (and it is up for consideration again this year).

In 2014, the 421-a program cost the city $1.1 billion in tax revenue for an effect of approximately 13,000 affordable-housing apartments out of 150,000 units that qualified for tax breaks. To take his cut of these benefits, Silver allegedly referred developers as clients to a real-estate tax law firm with which he had a referral-fee agreement of 25 percent. According to the complaint, one of the "clients" for whom Silver was taking "referral fees" was a billion-dollar luxury development corporation that benefited from the 421-a law and was "dependent" on favorable state legislation.

Between 2005 and 2014, that same corporation donated $10 million to politicians, making it the biggest political contributor in the state. The money went to both parties, but only one party was in the majority in both houses for several years running during that period. That same party controlled the governorship starting in 2007.

If voters won't punish their leaders for subsidizing luxury housing markets, why should politicians care? With Silver out of power, and a new freshman class of state legislators from the recent election cycle, there is plenty of opportunity for grassroots action to change these policies and hold politicians accountable.

Randal John Meyer is a Young Voices Advocate and a legal research fellow living in New York City. Twitter: @randaljohnmeyer

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