NYC’s New Housing Production Tax & Zoning Incentives

April 23, 2024 – Herrick News
Brett J. Gottlieb, Patrick J. O'Sullivan, Jr. and Mitchell A. Korbey

The New York State Fiscal Year 2025 Budget (the "Budget") adopted by the State legislature contains a number of measures aimed to increase housing production, particularly in New York City. Together, the measures represent the most significant changes to New York’s housing laws in a generation and provide an opportunity to spur housing production whether through new developments or the conversion of existing commercial buildings. 

421-a(16) Affordable New York  ("421-a(16)")

For the 421-a(16) program, the Budget extends the construction deadline to June 15, 2031, for projects that lawfully commenced construction (installed a foundation footing) on or before June 15, 2022. Projects that comply with affordability Options A, B, D, E or F are eligible for the extension. See 421-a Highlights Fact Sheet for option details.

Additionally, developers will need to "declare" their intention to make use of the extension with the New York City Department of Housing Preservation and Development through a yet to be determined application.

485-x Affordable Neighborhoods for New Yorkers Tax Incentive ("ANNY")

The Budget provides a new tax incentive program to be known as 485-x, which replaces the 421-a(16) program. Projects must commence construction prior to June 15, 2034, and be completed on or before June 15, 2038. The tax benefit will be calculated in the same manner as 421-a(16) by applying an exemption over a base year that is determined as the tax year immediately preceding the commencement of construction. Affordable units are to be permanently affordable. ANNY establishes a weighted average requirement for the maximum income earned by a tenant within the unit mix, which is determinative of the rent that can be charged (i.e., ANNY will allow developers to offer affordable units to upwards of three income groups ("Income Bands") so long as the average AMI does not exceed that of the maximum weighted AMI (either 60% or 80% depending upon building size). However, the maximum permitted income band is 100% of AMI. This feature will allow developers to lease units in accordance with the affordability restrictions of Inclusionary Housing where applicable. Except for certain "small" 6-to-10-unit buildings located outside of Manhattan, market-rate units are not subject to rent stabilization. The affordability requirements under ANNY will result in a net decrease in the monthly rental receivables for the affordable units compared to 421-a(16) which accepted tenants earning an income as high as 130% of AMI. Additionally, certain buildings (depending upon unit count and location) will be subject to minimum construction wage requirements. All ANNY applicants will be required to act in good faith to procure New York City Minority or Women Business Entrepreneurs Program ("MWBE") for 25% of their subcontractor trades. Click here for the 485-x Fact Sheet.

467-m Affordable Housing from Commercial Conversions Tax Incentive ("AHCC")           

The Budget provides a real estate tax incentive for buildings converting from a commercial to residential use. The project must provide 25% of the units as permanently "affordable" for tenants who earn an income at a weighted average of 80% of AMI (5% of the units must be designated as affordable at 40% of AMI).  Market rate units are not subject to rent stabilization requirements. Projects need to commence on or before June 30, 2031, and be completed on or before December 31, 2039. The length of the tax benefits will depend on commencement of construction with projects commencing by the earliest deadline receiving the lengthiest period of tax benefits. The exemption offered is a percentage discount off of the taxable assessed value for a particular year. Notably, there is a 100% savings during construction. The tax savings percentage is dependent upon the number of years elapsed since project completion and whether the building is located in Manhattan south of 96th Street, in which case there is a deeper benefit. Click here for the 467-m Fact Sheet.

Removal of the 12 FAR Cap for Residential Uses

The Budget includes modifications to the New York State Multiple Dwelling Law allowing for the removal of the 12 FAR cap for residential uses. To take effect, the City will first have to approve the City of Yes for Housing Opportunity zoning text amendment, which aims to, among other things, create new Residence Districts that allow residential FARs in excess of 12. Once approved, individual property owners will have to rezone their property to one of these newly created Residence Districts. These rezonings will be subject to the Uniform Land Use Review Procedure and Mandatory Inclusionary Housing requirements. Note that properties will not be allowed to exceed the 12 FAR cap if they are located in designated historic districts or have joint living-work quarters for artists. In addition, properties that are improved with existing residential buildings will not be allowed to exceed the 12 FAR cap unless a Certificate of No harassment is first obtained from HPD.

Please see City of Yes – Proposed Zoning Change to Promote Additional Housing Development and Update: New York City Proposes Increased Housing Density in Excess of 12 FAR for more details on the proposed City of Yes for Housing Opportunity zoning changes.

Herrick’s team of attorneys have extensive experience with complicated real estate transactions and can assist clients in navigating these new housing measures.

For more information on the issues in this alert, or other real estate or land use & zoning matters, please contact:

Brett J. Gottlieb at 212 592 1455 or [email protected]
Mitchell A. Korbey at 212 592 1483 or [email protected]
Patrick J. O'Sullivan, Jr. at 212 592 1503 or [email protected]
Robert Huberman at +1 212 592 1592 or [email protected]
Vinh Van Vo at +1 212 592 1588 or [email protected]

© 2024 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.