Long Island Construction Law does not own this content. This content was created by Kyle Strober , and was published to the Long Island Business News on August 31st, 2023.
Building multifamily residential housing is a business. That reality means that unless the region’s development community can phase in the property taxes, housing units will not be affordable for our next generation of Long Islanders. Deferring that immediate full tax bill comes through programs offered by industrial development agencies that are under the authority of Long Island’s various towns and our two counties.
Some call those programs “incentives” for developers to build. They are not. They are, in fact, essential if we are to meet the ever-growing housing crisis that virtually everyone acknowledges is threatening our ability to attract and keep next-gen Long Islanders as well as allow our seniors to age in place.
A report by the Long Island Multifamily Housing Study found the bi-county region is short by approximately 72,000 multifamily units of what it needs. Project out a decade or more and Long Island will be short some 95,000 multifamily units of anticipated demand. That would make today’s crisis tomorrow’s catastrophe. To appreciate the math behind these numbers for multifamily units one has to recognize that the costs of construction material and acquiring real estate are just part of the equation.
A pre-COVID estimate would budget multifamily residential at $260 per square foot on the Island. Developers in 2023 now need to budget an estimated $500 per square foot, and that’s if the cost of construction commodities such as concrete and wood framing remain static.
Those numbers are also dependent on what banks will charge for the cost of money in a business environment now being dictated by the Federal Reserve and the rate of return expected by investors in multifamily development. Yet these expenses are just a percentage of what is weighing down the bottom line. Developers also must factor in the cost of government regulations.
While on-the-job safety requirements are needed and embraced, there are countless other expenses baked into multifamily projects that reflect more ideology than common sense mandates. For example, a broad range of energy-conservation technology must now be included, such as the elimination of cost-efficient natural gas boilers and appliances. These requirements come at a time when there are serious questions as to whether the electrical grid is robust enough to meet the considerable power demand these new regulations will create.
Often lost in the debate over IDA benefits is the simple fact that multifamily construction usually reinvents dormant real estate that was paying far less in property taxes. Often an IDA agreement includes a requirement that the developer begin to send tax revenue to the local municipality under what is often a payment-in-lieu-of-taxes agreement (PILOT).
Fortunately, IDA’s are engaging developers who propose multi-unit housing. The Nassau County IDA recently granted phased-in tax bills to developers of a 60-unit Great Neck apartment proposal. The Glen Cove IDA approved the Garvies Point and Village Square housing projects for similar tax incentives, while in Hempstead Town, its IDA agreed to provide tax incentives for multi-unit housing in Westbury.
An additional strategic benefit from these IDA programs is the economic activity generated as a result of the construction of multi-unit housing. The revitalization of downtowns by new residents patronizing local shops is an obvious value, but so, too, are the hundreds of construction jobs generated by these programs which, in turn, add significant depth to the region’s economy.
The thoughtful application of IDA benefits has the means to confront the crisis in next-gen housing with the recognition that no developer can literally afford to launch construction on multifamily residences whose finances are doomed to fail.
John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (631) 608-1346.
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Long Island Construction Law does not own this content. This content was created by Kyle Strober , and was published to the Long Island Business News on August 31st, 2023.
