NYC HPD
The revised Section 421-a offers new opportunities for affordable housing. The 421-a property tax exemption began in 1971 as an incentive for developers to develop badly needed housing in New York City. When the real estate market rebounded in the 80s, the program was amended to condition tax abatements on the construction of affordable housing units. The program expired in June 2016. In its place, the State Legislature passed the “Affordable New York” program in 2017.
Under the new statute, the application must be filed within one year after completion and construction benefits are retroactive. There is no longer a requirement that a site must have been under-utilized three years prior to the start of construction. Instead, if the site contained dwelling units three years prior to the start of construction, the new building must have at least one affordable unit for each dwelling unit that existed on such date. In a significant change from the old 421-a Program, market rate units will not be subject to rent stabilization if the rent on the unit exceeds the luxury decontrol limit (currently $2,700 per month).
The new program is available to projects that commence construction between January 1, 2016 and June 15, 2022 provided that they are completed on or before June 15, 2026. The new program also created three designated affordability areas, (1) Manhattan south of 96th street, (2) Greenwood, Williamsburg, Downtown Brooklyn, the Brooklyn Navy Yard, and (3) Astoria, Long Island City, Woodside, Sunnyside, Woodside, and a small portion of Maspeth. Projects outside those zones can “opt in” to the program if they fulfill the requirements.
Projects less than 300 units
Developers building projects with fewer than 300 rental dwelling units in the designated affordability areas or projects with more than 300 rental dwelling units not located in the designated affordability areas can choose between three options.
Under option A, the developer must set aside 10% of the project units for households with incomes not exceeding the area median income, 10% not exceeding 60% of the area median income, and 5% not exceeding 130% of the area median income. Under this option, the property will receive 100% exemption for years 1 through 25. In years 26 through 35 the building will receive a 25% exemption. The building will be taxed only on the assessed value of the site prior to construction for the duration of the 35 years. Projects will also be eligible to receive tax exempt bonds and tax credits.
Under option B, the developer may choose to set aside 10% of the units not exceeding 70% of the area median income, and 20% not exceeding 130% of the area median income. Under this option, the property will receive 100% exemption for years 1 through 25. In years 26-35, the property will benefit from a 30 percent exemption. The building will be taxed only on the assessed value of the site prior to construction for the duration of the 35 years. These projects will also be eligible for substantial government assistance.
Under option C, the developer may set aside 30% of units must be affordable to people not exceeding 130% of the area median income. This option is not available in Manhattan south of 96th street. During years one through 25 the property will have a 100 percent exemption. In years 26-35, the property will be subject to a 30 percent exemption. The building will be taxed only on the assessed value of the site prior to construction for the duration of the 35 years. These projects will not be eligible for substantial government assistance.
Projects more than 300 units:
Developers of new residential projects with 300 units or more in designated affordability areas are eligible for a full property tax abatement for 35 years. In order to receive the abatement, developers must create affordable rental units and meet the newly established minimum construction wage requirements.
Buildings with 300 or more units also have three options. Under option E, the developer may make 10% of the project units affordable to households with incomes not exceeding the area median income, 10% not exceeding 60% of the area median income, 5% not exceeding 120% of the area median income. Under option F, the developer may choose to set aside 10% not exceeding 70% of the area median income, and 20% not exceeding 130% of the area median income. Under option G, the developer may set aside 30% of units as affordable to people not exceeding 130% of the area median income.
With projects more than 300 units, the enhanced thirty-five year benefit will provide a 100 percent exemption, except for the tax on the assessed value of the site prior to construction lasting. Additionally, the enhanced thirty-five year benefit requires that the affordable units remain affordable for forty years.
Wage Requirement:
Construction workers on projects located within enhanced affordability areas must be paid an average hourly wage of $60 per hour in Manhattan and $45 per hour if in Brooklyn or Queens. Buildings where more than 50 percent of the units are affordable as well as buildings that are subject to a project labor agreement are not subject to the wage requirement.
Both residential rental developers and City officials are optimistic about the future of Affordable New York. When asked about the program, Steven Manocherian, a principal at Manocherian Brothers said that “Since the expiration of the program, building residential rental developments in certain areas has become difficult due to high land and hard costs. This incentivized a condo boom and led to a dearth of new affordable rental supply. Given the revitalization of Affordable New York, rental developments that couldn’t get off the ground are now economically feasible.” Governor Cuomo stressed the program’s positive impact on New York City tenants when he said that “by making significant investments in rehabilitating, preserving and constructing safe and affordable housing, we will open doors for low-income residents and support hard-working New Yorkers in every region of the state.”
By: Leon Morabia (Leon is a student at New York Law School, Class of 2018).