BBG News

Second Time’s The Charm:  Governor Once Again Pursues a Variety of Proposals to Incentivize Housing Creation

Jan 19, 2024

On January 17, 2024, Governor Kathy Hochul once again introduced proposed legislation in an attempt to address the void in affordable housing in New York City – after a year of legislative intransigence.  As part of the 2025 Executive Budget, the Governor introduced three legislative proposals aimed to incentivize housing creation:

Affordable Housing from Commercial Conversions

The proposed Real Property Tax Law (“RPTL”) section 467-m, referred to as Affordable Housing from Commercial Conversions (“AHCC”), was created to address the dearth of affordable housing in New York City amidst a glut of vacant office space following the COVID-19 pandemic.

AHCC was proposed as part of last year’s executive budget, but ultimately these proposed changes were never adopted.

Extension for Vested 421-a(16) Projects

An extension of the completion date for new construction or eligible conversions on RPTL section 421-a(16), also known as Affordable New York.

These projects were required to commence on or before June 15, 2022, and complete on or before June 15, 2026.  The proposal would extend the completion date to June 15, 2031.

Additionally, this would also supplant the Governor’s previous effort to extend the completion deadline through her PILOT program in Gowanus 421-a.

No other changes to 421-a(16) were included in the proposal.

Affordable Neighborhoods for New Yorkers (485-w)

The first proposed replacement for 421-a(16) was entitled “485-w” – which the legislature deemed too similar to its predecessor.  Now, the Governor is proposing RPTL Section 485-x, also known as the “Affordable Neighborhoods for New Yorkers” tax incentive program (“485-x”).  Much of this program mirrors 421-a(16), in both structure and in substance.

The program would rely on the New York City Department of Housing Preservation and Development (“HPD”) to set affordability requirements, particularly the Area Median Income (“AMI”).

485-w will only take effect if a memorandum of understanding is executed by one or more representatives of the largest trade association of real estate developers in New York City, and one or more representatives of the largest construction labor unions with membership in New York City.

Eligibility Requirements

485-w also includes a variety of other requirements, including, but not limited to: (i) certified payroll requirements for the project; (ii) a reasonable effort to spend on contracts with minority and women-owned business enterprises (“M/WBEs”) for at least 25% of the total project costs; (iii) market and affordable units must share the same common entrances and common areas; (iv) a unit mix of proportional affordable and market rate units, or at least 50% of the affordable units have two or more bedrooms and no more than 25% of the affordable units have less than one bedroom; and (v) many of the restrictions not itemized herein from the 421-a(16) program.

Wage Requirements

The 485-w program requires building service employees receive a prevailing wage for the benefit period, and sets a minimum average hourly wage to be paid to construction workers within certain “prime development areas” in Manhattan, Queens and Brooklyn.

These wage requirements do not apply if at least 50% of the units are made available only to those units at or below 90% AMI.

Benefits

Benefits vary depending on the type of project.  However, any exemption of real property taxes does not include assessed valuation of the land at the property, or assessments for local improvements.  Additionally, if the aggregate floor area of the non-residential space exceeds 12%, any benefits would be reduced by that excess.

Homeownership Benefits: Affordable unit shall not exceed a to-be-determined AMI, and be maintained as a primary residence for five (5) or more years, and subject to a regulatory agreement.  These homeownership projects are eligible for a 100% exemption of real property taxes for forty (40) years after completion of construction.

Rental Benefits: The 485-x would provide an exemption from real property taxation, for the construction period – up to three (3) years.  Thereafter, the property receives a real property tax exemption for thirty-five (35) years, as follows:

  1. For projects with under thirty (30) dwelling units: For the first twenty-five (25) years, the property receives a 100% exemption of real property taxes, and for the final ten (10) years, an exemption of property taxes equivalent to the affordability percentage (i.e., the percentage of affordable units at the property).
  2. For projects with thirty (30) or more dwelling units: For the first twenty-five (15) years, the property receives a 100% exemption of real property taxes, and for the final ten (10) years, an exemption of property taxes equivalent to the affordability percentage (i.e., the percentage of affordable units at the property).

Additionally, affordable units are subject to rent stabilization in perpetuity.  Market rate units are not subject to rent stabilization unless, in the absence of 485-x, the unit would be subject to rent stabilization.

In the upcoming legislative session of 2024, we will have to wait and see which, if any, of the Governor’s proposals actually become law—whether it is all, some, or none at all.

Contact Us
 
For more information or if you have any questions, please reach out to your BBG attorney of record or contact us here.

Written by:  Zachary L. Nathanson, Attorney in the Firm’s Administrative Law Department.

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