With the expiry of 421a tax abatements on June 30, developers in New York City entered their most uncertain era of pricing decisions since the city created the program a generation ago. The Cooperative and Condominium Abatement program, which used a system of graduated tax abatements to spur development at a time when there was little, lasted decades longer than the crisis that gave rise to it, becoming a part of local developers’ financing logic. Now, anyone who uses it will also have to set aside 20 percent of new units for lower incomes. Some developers say they don’t know how to make the math work.

For more than a generation, 421a was a sine qua non in local development. The 421a program, as the city’s website defines it, came along in 1971 “to promote multi-family residential construction by providing a declining exemption on the new value that is created by the improvement.” In other words, a developer using the program can use the value of raw land to calculate taxes for somewhere between ten and 25 years. (The name references Section 421a of the relevant city law.) An exclusion zone between 96th to 14th streets and down through much of the West Village required developers to include affordable housing to qualify for abatements.

Beyond changing developers’ risk basis for construction in former industrial neighborhoods, 421a created a sort of currency. Developers who built affordable housing collected five certificates per low-income unit, which they could sell to developers working in the pricier districts where tax abatements were a particularly strong inducement for buyers. It was good policy in the Koch years, but as more and more of Manhattan gentrifed, projects in Soho and Tribeca took advantage of 421a. A law intended to preserve working-class housing had become an unintended boon to luxury developers.

Properties offering the abatement include 555 West 23rd Street in tony West Chelsea, and Soho Mews, a Charles Gwathmey–designed townhouse and condo with a private courtyard between Wooster Street and West Broadway. For even the most casual observer of the then-booming real estate market, it seemed out of whack.

Politically, though, 421a took a long time to reform. Condo buyers also became intimate with the program, since the abatement on taxes took the bite out of apartments’ closing costs and improvements. By 2007, nobody could argue that development would stall without a reform to the program. So as of July 1, the abatement only covers the first $65,000 of a property’s assessed value, and the exclusion zone has spread to parts of the outer boroughs. Now, uncertainties about the availability of bank financing and the thrust of the economy have some developers actually hedging before starting new projects. Evan Thies, a candidate for City Council in Greenpoint who worked for Councilmember David Yassky when the reforms came together, calls the new 421a more sensible and defensible. “David Yassky thought it absurd that we were giving away so much money to luxury developers,” Thies said. (Yassky is running for comptroller in a crowded field next year.) “So the new regime forces developers to find other ways to get a tax benefit.”

Romy Goldman, a principal in Manhattan’s Gold Development, takes a less blithe attitude. Without banking on tax abatements, she told AN, investors in projects like her firm’s cannot create meaningful forecasts for prices that will allow them to recoup their costs. Her firm developed the Deborah Berke–designed condo building at 48 Bond Street and is now marketing Hamilton Lofts, a 12-unit project on Edgecombe Avenue. Goldman calls herself a believer in mixed-income housing, but she said tacking a 20 percent requirement onto new condos in an uncertain mortgage market means forcing some developers to withdraw.

Indeed, developers who can neither offer buyers an inducement to pay high interest rates on mortgages nor sell only to very wealthy buyers may simply take their money off the table. If development slows down, the seemingly unthinkable would follow: The cost basis for local real estate may decline. “In six months, you’re going to see a major shift in land prices,” Goldman said. Theoretically, changes in the law should flow into land prices in a more orderly fashion, since the council debated reforms extensively before passing them earlier this year. Instead, in what Goldman calls a “perfect storm,” many developers rushed to pour foundations while they could still enroll in traditional 421a programs. That meant paying inflated construction and labor costs, which helped keep New York’s asking prices high even as the foreclosure crisis and Wall Street turmoil singed the economy.

Champions of 421a reform make no apologies. “My sense, from the developers that I have talked to, is that they will blame 421a changes for what many other factors in the marketplace are doing,” said City Council candidate Brad Lander. As head of the Pratt Center for Community Development, Lander advocated for more mixed-income requirements in new rezonings for residential development. If he and Thies win office and have to steer the new 421a to implementation, Goldman warned, they will find that such requirements are difficult to translate to a developer’s pro forma.

Thies says 421a was an anachronism in a city where developers are jockeying for sites in places like Greenpoint that suffer from poor subway access and extensive brownfields. The farsighted move, he argues, is to introduce a new trigger for tax abatement that matches a crisis of energy costs rather than a lack of eager developers. “Smart developers saw incentives for infrastructure improvements and environmentally friendly buildings on the way,” Thies said. By that logic, the end of 421a may mean the beginning of other programs that can make green architects, engineers, and planners valuable.

“If you can as a developer build an energy-efficient building for free because you’re going to get an abatement, you’ll make it energy-efficient,” Thies said. “Suddenly we as taxpayers have a lot more leverage.”