New York City Mayor Bill de Blasio has pledged to create or preserve 200,000 affordable units of housing in the next decade. Among the several proposals being considered, one idea is to amend or remove a controversial real estate tax abatement available under section 421-a of the Rent Act of 2011. The abatement gives developers a property tax break, in decreasing amounts, over a 25 year period. The statutory authority for abatement expires this Spring. In certain neighborhoods in the City, developers must set aside a percentage of units which are affordable. But in other parts of the City, there is no such requirement. While there is no question that the tax abatement has added affordable units to the City, Charles V. Bagli wrote an article published in the New York Times on February 2, 2015 in which he reported the record making sale of a penthouse which sold for $100.5 million. Because of a 421-a tax abatement, the real property tax bill is cut, initially, by 95 percent, or an estimated $360,000. According to Mr. Bagli, about 150,000 apartments got the 421-a tax exemption in fiscal 2013, but only 12,748 were earmarked for low-and moderate-income tenants. Since this is a voluntary program, it seems clear that any change in the required number of units or expansion of the geographic applicability will not represent a taking under the 5th Amendment of the U.S. Constitution.
What we are concerned with is the proposal now being considered to amend zoning provisions to encourage affordable set asides in new residential construction.
As it stands, in New York City there are presently inclusionary housing programs which require a percentage of units within a building to be affordable. All affordable residential units created through the inclusionary housing program must remain permanently affordable. They can be rental or ownership.
In the Special Hudson Yards District, the Special West Chelsea District and in designated areas mapped on First Avenue between East 35th and East 41st Streets in Manhattan, and along the Greenpoint-Williamsburg waterfront in Brooklyn, a percentage of units may be set aside for moderate- or middle-income households if a greater percentage of affordable units is provided. All bonus floor area must be accommodated within the height and setback provisions of the underlying zoning district.
The power of the State over private property extends from the regulation of its use under the police power to the actual taking of all or part of the fee under the eminent domain power. When the State “takes,” that is appropriates, private property for public use, just compensation must be paid. In contrast, when there is only regulation of the uses of private property, no compensation need be paid. But, a purported “regulation” may impose so onerous a burden on the property regulated that it has, in effect, deprived the owner of the reasonable income productive or other private use of one’s property and thus has destroyed its economic value. Fred F. French Investing Co. v City of New York, 39 NY2d 587, 593 (1976), rerg. den. 40 NY2d 846 (1976), cert. den. 429 US 990 (1976).
Said another way, a zoning ordinance is unreasonable, under traditional police power and due process analysis, if it encroaches on the exercise of private property rights without substantial relation to a legitimate governmental purpose.
For more on this topic, be sure to check out Michael Rikon’s column in the February edition of the New York Law Journal.