Hochul Tax Break Would Enable More Affordable Housing in NYC
January 31, 2024 – BloombergGov. Kathy Hochul's developer housing proposal, known as Affordable Neighborhoods for New Yorkers, or ANNY, aims to incentivize construction of much-needed new housing in New York City, including thousands of new affordable units.
To become reality, the initiative will require collaboration among all interested stakeholders including tenant groups, real estate developers, and organized labor. If adopted, the program would potentially spur development of thousands of market-rate and affordable housing units and create thousands of well-paying construction jobs in the process.
Many New Yorkers struggle to find and pay for housing in the city, which perpetually faces a housing emergency. An emergency occurs when the city has an apartment vacancy rate of less than 5%. Fifty percent of renter households pay more than 30% of their income toward rent—as reported in 2021 by the New York City Department of Housing Preservation and Development. That percentage of income is the threshold of being defined as rent-burdened.
While residential rents continue to rise, construction of new rental apartments has plummeted since the Affordable Housing NY Program, or 421-a, expired in June 2022. In the first half of 2022, the city issued 58,623 housing unit permits, but only 10,014 in the second half of the year. This decline is consistent with that experienced when a prior version of 421-a expired in 2016. It is anticipated that 2023 housing production data will reveal a similar dearth in units permitted for construction.
Rental housing production hasn’t kept up with the needs of New Yorkers, which further [puts pressure on] residential rents. Even with the spike of permits issued in the first half of 2022, there only have been permits issued to build an average of 32,474 units annually between 2017 and 2022, which is well below the city’s housing unit production goal of 50,000 units per year.
New York City property taxes on residential rental buildings are among the highest in the nation as a percentage of a building’s net operating income, posing major challenges to real estate developers and building owners. Residential property owners can pay as much as 40% of their net operating income toward property taxes, compared to many other jurisdictions where taxes may represent less than 15% of net operating income.
This stark comparison of tax expenses, coupled with higher interest rates, construction labor costs, and regulatory related costs, produce an inhospitable environment to build residential housing in the city. As a result, many developers have pivoted to build in lower-cost markets, particularly after expiration of 421-a.
While program details still need to be fleshed out, Hochul's proposal provides a framework for partnership. HPD is tasked with determining affordability requirements with tenant needs in mind.
The Real Estate Board of New York, representing developers, is required to agree on a memorandum of understanding with construction labor unions to address construction wage requirements for the proposed legislation to become effective. Interested stakeholders have the opportunity to craft a program that works for all New Yorkers.
Through increased production of residential units, tenants will benefit from a greater supply of both market-rate and affordable units throughout the city, particularly in areas where affordable housing is typically not available. Increasing housing production should serve to lower rents city-wide and ease the rent burden.
Without a program, New York City will continue to face a pullback in construction-related spending and jobs, disrupting its post-Covid-19 recovery. New York City has already lost too much time seeking to alleviate its housing crisis. It can't afford to let another year slip away.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Brett J. Gottlieb is partner in Herrick’s real estate department, with focus on applications for New York City’s real property tax incentives.
Patrick J. O’Sullivan Jr. is partner in Herrick’s real estate department, representing owners, developers, investors, governmental entities, and nonprofits.
This article originally appeared in Bloomberg on January 31st, 2024. Click here to read the full piece. Access may require a subscription.