A number of affordable housing components of the New York State Budget Bill are worth calling out for developers, as the moves, along with the hundreds of millions of dollars coming from the state, should spur development.

In a press release announcing the affordable housing components of the budget bill, Gov. Kathy Hochul said she and legislators had agreed on initiatives that are the most progressive in more than 50 years.

“I promised New Yorkers that we’d tackle the housing affordability crisis – and in this budget, we got it done,” she said. “As the first governor in half a century to put housing front and center, I will keep fighting to make our state more affordable and more livable and help every family achieve their New York dream.”

Her plan calls for $500 million to build up to 15,000 new homes on state land and more than $600 million in capital funding to support housing statewide:

  • $150 million for New York Housing for the Future to subsidize construction of cooperative rental and cooperative homeownership 100% affordable housing.
  • $140 million for capital improvements of New York City Housing Authority developments.
  • $80 million for capital improvements for Mitchell-Lama properties.
  • $75 million for capital improvements of public housing authorities outside of New York City.
  • $50 million for Land Banks to redevelop blighted or abandoned properties.
  • $40 million for capital awards to upgrade vacant rental units outside of New York City.
  • $40 million for Infill Housing to fund development of small homes within unused and underutilized lands with existing development patterns.
  • $10 million for capital improvements of rural housing subsidized by the Federal USDA 515 program.
  • $25.5 million in other one-time capital assistance projects.

In addition to the dollars, the budget contains several key provisions that affect developers.

The New 421a is 485x

First, the state replaced the multifamily project tax break known as 421a with 485x, called Affordable Neighborhoods for New Yorkers. According to Gov. Kathy Hochul, the 421-a program (which expired on June 15, 2022) produced more than two-thirds of all newly constructed multifamily housing in New York City over the past ten years.

Her budget extends the construction deadline for projects currently vested in the expired 421-a program through 2031. Developers who broke ground before June 15, 2022, have until June 2031 to finish their projects.

The new 10-year program increases the tax exemption from 35 up to 40 years. The new program no longer contains the developer-friendly 421a option of setting aside 30% of units for tenants earning 130% of the weighted average of area median income. To qualify under the new program, projects with 150 or more apartments must set aside 25% of units as affordable units, for tenants earning no more than 60% of the area’s median income. For projects of 100 to 149 apartments, the developer must set aside 25% of the units for tenants earning 60% of the area’s median income. For smaller projects up to 99 units, it is 20% at the 80% median income.

Projects outside Manhattan smaller than 12,500 square feet, with six to 11 units are eligible if 50% or more units are rent-stabilized. Condo and co-op projects located outside Manhattan are also eligible if they have an average assessed value of $89 per square foot or less.

Wage Requirements on Projects

Also, to qualify, the projects must pay certain wages. Wage requirements kick in on any project with more than 100 units, starting at $40 per hour and increasing 2.5% each year. For projects with more than 150 units in parts of New York City, wages must be $72.45 per hour or 65% of the prevailing wage; In other parts, it must be at least $63 per hour or 60% of the prevailing wage. Wages in these cases also increase 2.5% each year.

Commercial-to-Residential Conversions in New York City

The budget also creates a new tax incentive (25 to 35 years) for commercial conversion projects with affordable housing; while granting New York City authority to lift state restrictions on residential density. New York City Mayor Eric Adams estimates 20,000 homes could be created within 10 years by converting office buildings into residences.

To qualify for the new incentive, which starts at 90% in parts of Manhattan and 65% outside Manhattan, 25% of the new apartments must be set aside for affordable units at 80% of the area’s median income, including 5% at 40% of the median income.

The new program lifts the floor-to-area ratio (FAR) in place for more than 50 years. Residential space had been limited to 12 times the lot size and Adams plans to create two residential districts with ratios of 15 and 18. Any residential projects exceeding 12 must have as much affordable housing as required under law.

Tax Incentives Outside New York City

Municipalities outside of New York City can opt in to a tax incentive program for mixed-income and 100 percent affordable new construction or for converting multifamily rental projects, and an incentive to create accessory dwelling units (ADUs). The budget also requires New York’s Fire Prevention and Building Code Council to find ways to amend the code to facilitate alternative forms of multi-family housing.

Good Cause Evictions

The budget bill contains a “good cause” eviction provision, allowing tenants to challenge evictions resulting from rent increases of more than 10% or 5% plus inflation, whichever is less. This provision automatically applies in New York City and is available for other cities around the state to opt in. Landlords can still evict tenants who don’t pay their rent or commit other offenses, and there are exemptions from the good cause provision for newer buildings and certain affordable units.

Section 8 Enforcement

The budget establishes a new enforcement unit to quickly resolve complaints of housing discrimination when those using Section 8 Housing Choice Vouchers claim they were unfairly denied access because they use vouchers.

Harris Beach’s Affordable Housing team is monitoring these and related development and related developments. If you have questions for our housing lawyers, please reach out to attorney Michael A Discenza at (212) 912-3605 and mdiscenza@harrisbeach.com; attorney Linnea B. Spagnoletti at (585) 419-8623 and lspagnoletti@harrisbeach.com; attorney Michael E. Condon at (585) 419-8603 and mcondon@harrisbeach.com; attorney Melanie C. Marotto at (716) 200-5230 and mmarotto@harrisbeach.com; or the Harris Beach attorney with whom you most frequently work.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as Washington D.C., New Haven, Connecticut and Newark, New Jersey.