Justifying tax exemptions for housing—in 1933

Lincoln Square undergoing slum clearance

Lincoln Square undergoing slum clearance

As we edge closer to the expiration of New York State laws that create the 421-a tax incentive for housing, the debate about its reform—and indeed, its fundamental merit—has heated up. As always, contemporary debates are a wonderful chance for CHPC to dive back into its archives for relevant wisdom.

This week we’ve unearthed a pair of gems that explore the same debate: whether government should spend a valuable resource to build housing. But these documents—one an explainer, the other a fully impassioned argument—despite their close parallels with the 421-a debate, recall a much different New York City. The year was 1933, a couple years into the Great Depression, and slum clearance was the policy in the air and on the minds of city planners.

“On June 22, 1927, the Municipal Assembly of New York City enacted Local Law No. 9 providing for tax exemption of the improvements of State Board of Housing projects for a period of twenty years,” explains a memo from the NYC Welfare Council’s Housing Information Bureau.

Its companion document, dated February 24, 1933, frames the discussion by pointing out that “at various times, in various places the government has” subsidized public transit; utility installation; condemned property under eminent domain; and reduced the tax obligations of “housing corporations which limit dividends, their rents, or both.” Building the foundation of an argument in support of the tax benefits, the memo continues, “Under present conditions it is financially impossible to build for the lower income groups without the aid of tax exemption.”

Still, the authors of the initial explanatory memo were realistic: “Once the state and municipality are committed to a program of stimulating the improvement of the housing of its inhabitants, they must be prepared to pay the price. We cannot embrace a policy and refuse to accept its consequences.”

Their research includes a case study presenting the effect of the tax exemptions on nine residential buildings. The chart from their report is seen below. Interestingly, this memo points out that “the principal factor producing the variations shown in the room rental increases is the difference in the average room sizes. Buildings with smaller rooms experience the lowest savings and those with the larger rooms the greatest savings.” This, the authors write, suggests that developers who provide more to their residents (in terms of living space) receive a greater benefit (in reduced taxes) for doing so.

Results of a 1933 case study examining the effects of tax-exempted on rents in New York City.

Results of a 1933 case study examining the effects of tax-exempted on rents in New York City.

The Welfare Council memo concludes,

“The municipality has a great responsibility for the kind of dwellings confined within its jurisdiction. When it fails to widen narrow streets, to develop new playgrounds and parks, to build modern schools, provide adequate means of transportation and to zone blocks so that factory and residential buildings are not alongside one another, there results such deteriorated neighborhoods as the Lower East Side. The hundreds of millions of dollars which the city has lost from such short-sighted policies can easily be computed. The losses from disease and crime caused by bad housing cannot be measured in monetary terms.”

You can read the original documents here and here.