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New York’s New Tax Abatement Program Makes Some Affordable Housing Projects Less Feasible

When New York Governor Kathy Hochul signed the state’s budget into law in April she enacted legislation intended to replace the New York City affordable housing tax abatement program known as 421-a, which expired in 2022. Like its predecessor, the new program, Affordable Neighborhoods for New Yorkers (the “ANNYP”) or 485-x, eases the tax burdens imposed on developers of affordable housing projects. It also generally requires the developers of those projects to charge lower rents and pay higher construction costs than 421-a, however, thereby decreasing the viability of many developments.  

The developers of some projects that were approved for abatements under 421-a are facing extra challenges too. While Gov. Hochul extended the deadline for the completion of projects approved for tax abatements under 421-a from June 2026 to June 2031, those projects are no longer permitted to fulfill the expired program’s affordability requirement by electing to make 30% of the units affordable for tenants earning up to 130% of the area median income (“AMI”).

How the ANNYP Works: An Overview

The ANNYP provides tax exemptions to qualifying residential rental-property projects in New York City for, in most cases, a period of up to three years while they under construction, plus a period that lasts between 35 to 40 years, depending on the size of the project and where it is located in the city.

Unlike units that qualified as affordable under 421-a, units that are affordable under 485-x are permanently affordable and rent-stabilized.

Construction on projects eligible for 485-x exemptions must have begun sometime after June 15, 2022 and before June 15, 2034.

Projects with fewer than six units are not eligible for abatements under the program.

To qualify for tax exemptions, 485-x—like its predecessor—requires that rental-property projects meet affordable housing and wage requirements. Those requirements are more stringent than the ones imposed under 421-a, however.

The New Wage Requirements

Residential rental projects with fewer than 100 units do not have to meet any wage requirements to qualify for a 485-x tax exemption. Projects that involve more than 100 units must pay construction workers at least $40 an hour. The wage requirement is significantly higher in certain Brooklyn neighborhoods like DUMBO and Brooklyn Heights, and in Queens’ Astoria and Queensbridge neighborhoods, where contractors must pay workers at least $63 per hour or 60% of the prevailing rate.

And the wage requirement is highest—$72.45 per hour or 65% of the prevailing wage, whichever is lowest—for projects comprising more than 150 units in what is known as “Zone A”: neighborhoods on the Brooklyn and Queens waterfronts or below 96th Street in Manhattan.

All of the aforementioned rates increase by 2.5 percent every year.

The New Affordability Requirements

To qualify for a 485-x tax exemption, residential projects must also include a certain number of units that qualify as affordable housing. The percentage of units that must be affordable—and what affordability means—depends on the project’s size and location.

 The following affordability requirements apply to residential rental projects:

  • Projects that are 12,500 sq. feet or smaller, are located outside of Manhattan, and comprise 6-to-11 units: To qualify for a 485-x tax break, 50% of the units must be rent stabilized, and—unlike the abatements afforded to other qualifying projects—the tax break is available for only 10 years.
  • Projects with 6-to-10 units in Manhattan or on a zoning lot with more than 12,500 square feet of residential floor area: 20% of the units must be set aside for tenants who earn a weighted average of 80% or less than the AMI;
  • Projects with 11-to-99 units (citywide): 20% of the units must be set aside for tenants who earn a weighted average of 80% or less than the AMI;
  • Projects with 100-to-149 units (citywide): 25% of the units must be earmarked for tenants who earn a weighted average of 80% or less than the AMI;
  • Projects with 150 or more units located in Zone A or Zone B: 25% of the units must be earmarked for tenants who earn a weighted average of 60% or less than the AMI.
  • Projects with 150 or more units (citywide): 25% of the units must be earmarked for tenants who earn a weighted average of 60% or less than the AMI.

Significantly, the ANNYP does not include highest-income affordability option that was available under the expired program. That option—which was especially popular—allowed developers to satisfy affordability requirements by setting aside 30% of a project’s units for households earning up to 130% of the AMI.

On a separate note, condominium and housing co-operative developments located outside Manhattan with assessed values averaging $89/sq. foot or less may also qualify for 485-x tax exemptions if all owners agree to use their units as their primary residence for at least five years.

The ANNYP May Not Benefit as Many Developers as the Expired Program

The 421-a program was popular among developers, benefitting more than two-thirds of the 117,042 rental units built between 2000 and 2010, according to the New York Times.

By increasing certain minimum construction-workers’ wage requirements, eliminating the highest income affordability option, decreasing the AMI requirement for some tenants (which will result in lower rents), and requiring that all units be permanently affordable, the ANNYP makes it significantly more challenging for developers to get certain affordable housing projects off the ground.

To learn more about the financing options available for affordable housing projects and other real estate developments, contact George Duke, Esq.

  • George C.D. Duke

    George Duke focuses his practice on helping businesses navigate complex environmental and land use laws and regulations pertaining to corporate and real property transactions, land development, permitting, and mine ...


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