The 421-a tax exemption and rent stabilization program, also known as the affordable housing tax break, which affords real estate developers a tax break in developing affordable housing in New York City, has expired as of June 15, 2022. If the 421-a program is not renewed, it raises questions about the future creation of affordable housing in New York City, and may pose difficulties for tenants who have been protected from rent hikes through rent stabilization.
The 421-a tax exemption program is a real property tax exemption program accessible to developers who build new and affordable multi-family residential buildings in New York City. It is aimed at increasing affordable housing in the most densely populated areas of the five boroughs. The program gives developers of multi-family developments where at least 25% of the units are affordable up to 100% of tax exemption for the first 25 years after the house is completed, and an exemption equal to the percentage of affordable units during the next 10 years following the first 25 years. It costs New York City about $1.77 billion yearly in lost tax revenue to maintain this tax exemption program.
The 421-a program had critics such as Brad Lander, the New York City Comptroller, who says that the 421-a is a flawed, overpriced band-aid placed atop New York City’s broken and unequal property tax system. But it also had prominent supporters such as the Mayor Eric Adams of New York, who says the 421-a tax exemption is a way of creating affordable apartments and producing good-paying jobs for construction workers.
However, there is no single documented reason why the legislature did not vote to extend the program — even though Assemblyman Jeffrey Dinowitz, a Democrat representing some parts of Bronx, noted that many people have very serious problems with the 421-a program. There are speculations that the legislature was preoccupied with “more pressing issues” such as gun rights following the racially motivated mass shooting in Buffalo and abortion rights given the prospect of SCOTUS repealing Roe v. Wade. Gov. Kathy Hochul is said to have proposed an updated version of the program, called 485-w, but the legislature did not act on that proposal because it is similar to the old one.
What is the future like? Tenants who live in houses where the developers accessed 421-a tax exemption are eligible for, and usually enjoyed, rent stabilization. But with the expiration of the program, one can only wonder about the fate of affordable housing in New York City. Gov. Hochul expressed optimism that the program may be restored in 2023, as she says she will continue to negotiate behind the scenes to get it done. However, the bill has expired, and uncertainty looms. If it never gets renewed in its present or updated form, then affordable housing within the metropolis of New York City is at risk and rent stabilization may soon become a thing of the past. History. We will have to wait and see what happens.
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, New York City, Rochester, Saratoga Springs, Syracuse, Uniondale, and White Plains, as well as New Haven, Connecticut, Newark, New Jersey, and Washington, D.C.