New Housing Tax Incentive Plan Requires Negotiations

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Earlier this year, Governor Kathy Hochul introduced her budget proposal, drawing significant attention from lawmakers and stakeholders to a specific tax incentive called 485-x, also referred to as the Affordable Neighborhoods for New Yorkers (ANNY) program. However, it was notably sparse on details, which sparked comments from various stakeholders. These crucial details has been left primarily to negotiations among state lawmakers, construction unions, and developers. Governor Hochul has described the ANNY as a temporary substitute, indicating that its specifics are still very much open to negotiation. These negotiations will be an opportunity for everyone to speak in on their opinions.

Similar to the expired 421-a initiative, ANNY proposes a 35-year tax break for developers undertaking rental projects with affordable units in New York City, extending to 40 years for projects aimed at homeownership. However, the plan lacks clarity on the specific affordability levels required, leaving these critical decisions to the New York City Department of Housing Preservation and Development (HPD). This approach marks a significant shift from Governor Hochul’s previous attempt in 2022 to replace the tax break with a more detailed 485-w program. The proposed 485-w included deeper affordability requirements than 421-a and offered multiple options for developers in terms of affordability. Despite these details, lawmakers rejected the proposal, leading to the expiration of 421-a in 2022. Additionally, Hochul’s current 485-x plan places the responsibility on real estate stakeholders and labor unions to create an understanding that would set wage standards for projects eligible under the new program.

Samuel Stein, a housing policy analyst with the Community Service Society (CSS), voiced concerns about the exclusion of tenants and future residents from the decision-making process. His concern is due to a report published by CSS last year estimated that the 421-a program had resulted in a loss of $1.1 billion in property tax revenue for the city, effectively benefiting the luxury housing market instead of creating truly affordable housing. Additionally, a city comptroller’s analysis revealed that the majority of income-restricted units developed under 421-a from 2017 to 2020 targeted households earning 130 percent of the Area Median Income, making them unaffordable for the average New Yorkers.

At a mayoral press conference celebrating 2023’s housing construction achievements, New York State Assemblymember Jenifer Rajkumar emphasized the necessity of a tax incentive to foster affordable housing development. Of the more than 14,000 housing units that began construction in New York City last year, around 51 percent were made possible through the benefits provided by the 421-a tax exemption. “This housing plan must include common sense tax incentives which have previously helped finance more than half of new construction, conversions of vacant commercial office space in Manhattan into affordable housing, the legalization of basement apartments in places like my Queens district, and an increase in the FAR cap, which has not been updated since the 1960s,” Rajikumar stated. Questions about the level of discretion HPD will ultimately have in the plan led to skepticism among some political observers. However, many individuals, such as Howard Slatkin, executive director at the Citizens Housing & Planning Council and a former NYC Department of City Planning official, believes that those important details will just be handed over to an administrative agency by the Legislature. If they do, it would just imply a level of freewheeling legislative delegation that just isn’t realistic. Slatkin also stressed the importance of a new tax incentive for effectively utilizing the city’s Mandatory Inclusionary Housing (MIH) program to enhance housing production through rezoning.

Others involved in shaping the proposal praised the governor’s collaborative approach, though some expressed doubts about the willingness of other stakeholders, particularly the Real Estate Board of New York (REBNY), to negotiate in good faith. Many criticized REBNY for its stance against incorporating tenant protections into the negotiations, causing people to be hesitant in forming a deal with them.

REBNY, on the other hand, stated how it wants to be committed to working with a broad range of stakeholders, including continuing collaboration with the Building and Construction Trades Council and its unions to ensure fair construction wages and benefits as part of any new program that encourages the creation of multi-family/mixed-income rental housing. As the state legislative session progresses, negotiations are expected. One impact aspect is tax break. Senator Brian Kavanagh, chair of the Senate housing committee, calls for the necessity of a tax break to create development. He stated that, “I am not opposed to using those kinds of tax breaks to promote public goods including affordability, and also environmental sustainability, good jobs in the production and in the buildings. And that’s what we use them for.”

Assemblymember Rosenthal expressed openness to incorporating renter protections into the tax incentive discussions, emphasizing the importance of addressing tenant inequities alongside any new program. “Taken together, these four bills will go a long way toward preserving the dwindling affordable housing stock in New York City” she remarked. The coming months will determine whether these negotiations can produce a plan that meets the needs of both developers and New York’s most vulnerable residents.