Hochul Proposes 421-a Replacement Program and Completion Deadline Extension in 2024/2025 NYS Budget

January 18, 2024

On January 16, 2024, New York State Governor Kathy Hochul announced two proposals that aim to incentivize the construction of new affordable housing units in New York City as part of the Fiscal Year 2024/2025 Executive Budget.

Proposal 1

A new affordable housing program to be known as Affordable Neighborhoods for New York ("ANNY") pursuant to new section 485-x of the Real Property Tax Law.

Program Highlights

  • Affordability requirements to be determined by the New York City Department of Housing Preservation and Development ("HPD").
  • Construction wage requirements to be determined pursuant to a Memorandum of Understanding ("MOU") executed by the largest trade association of real estate developers in New York City (REBNY) and the construction labor unions.
  • Law enactment is contingent upon execution of the MOU with a deadline of January 1, 2025.
  • Predicated on the execution date of the MOU, developers would have 5 years to commence construction and 9 years to complete construction, respectively.
  • The benefit term for rental projects would include a 25-year exemption of property tax (plus upwards of 3 construction years) as measured by the increase in property tax over a base year (the tax year immediately preceding the commencement of construction). Additionally, the applicant would receive 10 years of a reduced benefit equal to the percentage of affordable units offered by the housing project.
  • The benefit term for home eligible ownership projects would include a 40-year exemption of property tax (plus upwards of 3 construction years) as measured by the increase in property tax over a base year.
  • Units designated as "Affordable Units" would be rent stabilized. The affordability requirements will be permanent for buildings with 30 or more units.
  • Market Rate units would not be subject to rent stabilization.
  • Developers must make a "Reasonable Effort" to utilize Minority and Women Owned Business Enterprises contractors for no less than 25% of the total applicable construction cost.
  • Many 421-a(16) program requirements remain unchanged in the 485-x proposal including affordable unit allocation/stacking requirements and prevailing wages for building service workers for projects containing 30 or more units.

The 485-x bill is similar in form to 421-a(16); however, much remains unknown with regards to substance at this time, particularly with respect to the affordability and construction wage requirements.

Proposal 2

An extension of the construction completion deadline for projects that commenced construction lawfully and in good faith on or before June 15, 2022.

  • The completion date for vested 421-a(16) projects would be extended from June 15, 2026 until June 15, 2031.
  • The proposal would not alter any of the original 421-a(16) requirements, including requirements relating to construction wages, affordability and unit-mix allocations.
  • Additionally, the benefit calculation methodology and term would remain unchanged.

A construction completion deadline extension would provide much needed relief to developments facing design or construction related delays, particularly those projects that are required to provide affordable housing pursuant to Mandatory Inclusionary Housing ("MIH").

Additionally, the proposal would alleviate the need for projects located in the Gowanus area of Brooklyn to participate in the Gowanus Neighborhood Mixed Income Housing Development Program ("Gowanus Program Alternative"). The financing of projects with delayed completion dates will remain a challenge without an extension of the completion deadline or an expansion of the Gowanus Program Alternative to all neighborhoods in New York City.

Herrick will monitor the progress of these proposals, and we will provide updates as more details emerge.

For more information on real estate or real estate tax incentive matters, please contact:

Brett J. Gottlieb at 212 592 1455 or [email protected]
Patrick J. O'Sullivan, Jr. at 212 592 1503 or [email protected]
Mitchell A. Korbey at +1 212 592 1483 or [email protected]

© 2023 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.