On Dec. 20, City Council will vote on an issue that’s been debated in housing circles for much of 2006: updating a 1971 amendment, via section 421, to Chapter 1207 of the state real property tax law. Councilmembers are presently negotiating to try to close the wide gap between supporters of Speaker Christine Quinn’s bill and of a competing bill sponsored by Councilmember Annabel Palma. “421-a,” as it is called, sunsets at the end of 2007, so the Council must pass its changes by the end of this year to give the state legislature time to enact (or not) the city’s new version of this mechanism for encouraging contruction of both below-market and market-rate housing.

The affordable housing challenge in New York City is simple: we have too many people looking for too few apartments. The city added 900,000 new people since 1990, coming from around the world to share in our success. But that increase has led to a shortage of housing that has pushed up housing prices.

Changes in a complex tax incentive called 421-a can go a long way toward making New York more affordable. The 421-a incentive program was created in the 1970’s to spur housing development at a time when New York desperately needed it. The real estate market has changed dramatically since then, and the incentives must change as well. To ensure that 421-a serves our current housing needs, the Mayor convened a 26-member task force to examine it. The task force issued recommendations in October. City Council Speaker Christine Quinn introduced legislation that builds on the reform framework laid out by the mayor's task force. The speaker’s bill, co-sponsored by a majority of the council, will end unnecessary tax breaks for luxury condos owned by millionaires and redirect that money toward affordable housing.

The reforms will produce $400 million for an Affordable Housing Trust Fund, and generate $300 million for the mayor’s 165,000-unit New Housing Marketplace Plan, the largest municipal affordable housing plan in the nation’s history. The mayor’s $7.5 billion plan will create affordable housing for 500,000 New Yorkers – more people than live in the city of Atlanta.

The changes proposed by the mayor and speaker would expand the 421-a “exclusion zone,” the area where developers are required to make 20 percent of the housing affordable in exchange for 421-a tax benefits. Currently midtown Manhattan and a small part of the Brooklyn waterfront are in the exclusion zone. Now additional neighborhoods where prices are the highest will also be covered: most of Harlem, lower Manhattan, DUMBO, Brooklyn Heights, downtown Brooklyn, Carroll Gardens, Cobble Hill, Boerum Hill, Park Slope, Williamsburg, Greenpoint, most of Fort Greene, Prospect Heights, the Brooklyn and Queens waterfront, and portions of Sunset Park and Bushwick.

The legislation would also impose a “luxury” cap, limiting the amount of tax breaks an apartment receives. Buildings with an average sales price of over $650,000 will have their benefits reduced substantially. And citywide, the full 25 years of benefits would be granted only to developments that provide affordable housing, using 421-a benefits to stimulate low-income housing for the first time in much of the city.

Another bill considered by the Council, sponsored by Councilmember Annabel Palma, would have expanded the exclusion zone citywide and required 30 percent of units developed to be made affordable. While this may sound like it would produce more affordable housing, the truth is it would produce less. Instead of affordable housing, developers would build luxury housing in areas with strong markets and nothing at all in areas where the market is weaker.

A much better proposal is in the speaker’s legislation, which would establish a commission to review the lines of the exclusion zone every two years. The commission would ensure that affordable housing is required in neighborhoods where the market can support it, without going too far and threatening the strength of the middle-income housing market. Regular review of the exclusion zone lines will ensure that we can harness strong markets to help create affordable housing without shackling the market by writing legislation today that tries to predict housing prices in five or 10 years’ time.

Last year, the city authorized housing permits for 31,599 new units, the largest number of permits since 1972, and we expect to do even better this year. Three-quarters of those permits are for development outside of Manhattan. Forty-one percent of the outer borough units supported by 421-a are affordable to families earning less than ninety-five percent of the Area Median Income, which is equivalent to $67,400 for a family of four. Under Mayor Bloomberg we have seen a strong middle-class housing expansion that is providing housing for working families who want to realize the dream of homeownership in places like the south Bronx, central Queens and many parts of Brooklyn.

Extreme changes to 421-a would halt construction of housing and of our progress in reducing the city’s housing shortage. The proposal supported by the mayor and speaker would create the right balance between the maximum amount of affordable housing and ensuring that new housing construction will continue at a strong pace.

Shaun Donovan is commissioner of the city's Department of Housing Preservation and Development.

This story has been updated.