Governor Kathy Hochul introduces replacement 421a

Governor Kathy Hochul introduces replacement 421a (Getty Images, iStock, , Illustration by Kevin Cifuentes for The Real Deal)

It may have a new name, but Governor Kathy Hochul’s proposed tax relief sounds a lot like 421a.

In her executive budget, the governor outlined a replacement for the incentive program, often cited by developers as essential to building rental housing in New York.

Hochul renamed it Affordable Neighborhoods for New Yorkers, but would create a new tax code for the five-borough program, 485w. If approved by the legislature – which is virtually certain to require changes – it would replace the 421a, which has been dubbed Affordable New York in its most recent version and will expire on June 15.

The Real Estate Board of New York, which represents developers, backs the governor’s proposal, calling it “an important tool to continuously produce rental housing at more affordable levels.”

The proposal ignores the tenant advocates’ request to end 421a. The Legal Aid Society criticized it as similar to the current scheme, which it called a “colossal waste of taxpayers’ money”. Tenant advocates are pushing the legislature to pass a good cause eviction, which could complicate negotiations over Hochul’s tax relief proposal.

Aaron Carr, founder of the Housing Rights Initiative, which has played a role in several lawsuits alleging 421a abuses, said that until there is political will to reform the city’s property tax system , incentives based on it will continue to be “useless and ineffective”. ”

“I’m against 421a and any replacement program that looks like 421a,” he said. “It’s like putting a bandage on a wound that needs a lot of stitches.”

Like 421a, the new program would offer a property tax holiday for 35 years in exchange for developers setting aside a percentage of rental units as affordable. But 485w would give developers fewer options to meet this requirement, while increasing accessibility levels.

It would also require some apartments to remain affordable at all times, not just while taxes are cut, and appears to ease wage requirements for building services workers in projects receiving the benefit.

To qualify for the tax relief, residential rental projects of 30 or more units should reserve at least 10% of the units for households earning 40% of the region’s median income or less, an additional 10% for those at 60% of the AMI and 5% for those at 80%.

These affordability requirements must remain in place even after the tax relief ends – a departure from the current program. This changes nothing for projects subject to the city’s mandatory inclusive housing law, which already requires ongoing affordability.

The city’s program applies to upzoned parcels and was designed to work in tandem with 421a. The governor would essentially eliminate Affordability Option 421a which was the analogue of MIH’s Option 2, where 30% of units are affordable for those earning up to 80% of the AMI.

City officials have shown an appetite for eliminating Option 2 entirely to instead focus on low-income people. In rezoning Soho and Noho, the city council removed the option for developers.

Hochul offers another rental option: projects with less than 30 units must designate at least 20% of the units for households earning up to 90% of the AMI. These requirements, which only apply to incoming tenants, would last for the duration of the exemption.

Notably, the governor’s budget bill would allow more condo and co-op projects to benefit from the program. The current one is off limits to condos and co-ops that are in Manhattan or have more than 35 units and have an assessment over $65,000 per unit.

Hochul would give co-ops and condominiums a 40-year advantage if all units were reserved for buyers earning up to 130% of the AMI for that four-decade period and the new owners used the house as their primary residence for at least five years. . The city’s housing agency would be responsible for monitoring resales by individual homeowners.

Alvin Schein, a Seiden & Schein partner who has worked extensively with the 421a program, called the changes to the eligibility requirements for condos and betterment co-ops.

“It replaces it with a more rational, income-based standard,” he said. “It’s not based on a graded assessment.”

Under the current program, developers of condo and co-op projects don’t know if their units are eligible until the project is complete. The 2016 reform limited the program almost entirely to rental.

The soon-to-expire 421a included several other affordability tiers, which depended on the projects having more than 300 apartments. Some options allowed dedicated apartments for those who made up to 130% of the AMI.

The governor’s proposal requires all limited-income units to remain rent-stabilized even after the tax relief expires. It specifies, however, that housing at market price in projects benefiting from the advantage will not be subject to the terms of the rent stabilization law.

This became a thorny issue when the 2019 rent reform killed “luxury deregulation” – the ability to deregulate apartments on the basis of rent above a certain threshold. Lawmakers later changed the law to exempt market-rate units in projects receiving 421a.

Hochul’s measure includes language that prohibits owners of storage units, saying affordable apartments cannot be “held off the market for a longer period than is reasonably necessary to make repairs,” though that he does not define “reasonably”.

His bill also states that developers who lose the tax benefit for violating program rules will still have to meet affordability and rent stabilization requirements for their initial tax relief period. The penalty would also apply to units at the market rate, which should remain stabilized.

The proposal changes wage rules for workers in construction and construction services. The version approved in 2017 introduced construction wage requirements for projects over 300 units in “enhanced affordability zones” in Manhattan, Brooklyn and Queens. The budget bill raises those average minimum wages to $63 an hour in Manhattan, up from $60 previously; and $47.25 an hour in Brooklyn and Queens, down from $45 previously. These numbers increase by 5% after one year and every three years thereafter.

The bill leaves the door open to wage adjustments, giving that authority to the Department of Labor. Prior to 421a renewal in 2017, construction unions required construction workers on 421a projects to be paid prevailing wages. Then-Governor. Andrew Cuomo left it to the Real Estate Board of New York and the Building and Construction Trades Council to strike a deal.

The result fell short of the trades’ initial demands and created a new headache for developers and general contractors tasked with figuring out which trades to hire to meet average salary requirements.

REBNY and the building trades have since agreed to team up on policy issues that affect their members. Some unions in the labor group have also reached wage agreements with individual developers to compete with their non-union counterparts.

A representative for Gary LaBarbera, president of the state and city building trades chapters, did not respond to a 485w request for comment.

The budget bill appears to relax existing rules for paying construction service workers’ wages. It exempts projects with fewer than 300 units, rather than those with less than 30, in addition to those where 50% or more of the apartments are affordable. However, projects receiving municipal assistance of $1 million or more and having at least 120 units must pay prevailing wages to workers under a measure passed by the city council in 2019.

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