On 421-a, choose special interests or affordable housing

This editorial as published in Crain’s NY Business Journal can be found here.

Nonunion contractors can deliver cost-effective rental projects under the city’s tax-exemption program while paying middle-class wages.

Mayor Bill de Blasio is right to make affordable housing an integral component of his policy agenda. His ambitious goal of creating 80,000 affordable housing units and preserving another 120,000 is laudable. But he faces major obstacles, not the least of which is incentivizing developers to build the units.

The mayor’s plan would mandate that in new rental buildings, developers appropriate 25% to 30% of apartments for lower-income residents in order to receive a property-tax break from the city. That’s a big ask, given the high cost of construction in the city. But his motivational tool is a well-known tax exemption called 421-a. The program, which provides a property-tax break for new apartment projects citywide, along with requirement in certain high-priced neighborhoods that 20% of units be affordable for low-income residents, is set to expire June 15.

Conversations on the 421-a abatement program have run rampant at City Hall and in Albany. Special interests have pushed hard to attach costly prevailing-wage mandates to this incentive. We must understand that using prevailing wage will result in fewer renovations as well as fewer new units. The math is undeniable.

In all of these debates, there has been an insinuation that merit, or nonunion, contractors pay poor wages. This could not be further from the truth. They pay wages driven by market forces that allow employees to earn middle-class incomes while still delivering cost-effective projects to customers and taxpayers alike.

But nonunion contractors rarely bid prevailing-wage work because of another misguided policy, annualization of wages and benefits, which exposes them to arbitrary fines and penalties from the state Department of Labor.

Let’s be clear: Prevailing wages are not average wages, as one might think. In fact, according to the city comptroller’s 2015 prevailing-wage schedule, a carpenter would earn salary and benefits worth approximately $94 per hour, while the average figure for a carpenter in the region is roughly $60. The disparity is a major factor in why more construction is New York City is going to merit-shop contractors.

In typical bureaucratic fashion, supporters of this convoluted wage proposal seem to equate higher costs with better housing, failing to let the private sector dictate best value for the best price. If developers’ additional costs to include affordable housing are to be mitigated through normal tax subsidies, then these costs will ultimately be shouldered by the taxpayers of New York City. Increased government involvement is simply not the answer.

Government should not be in the business of picking winners and losers, but it will under this wage scheme. The winner? Organized labor, which is placed on an uneven playing field on which others cannot compete. The losers? Renters who need access to affordable housing, and taxpayers—both unfortunate casualties in this attempt to have government interfere with the private market.