NYC Land Use Bulletin: Governor Cuomo Announces New 421-a “Affordable Housing NY Program” Legislation
Governor Andrew Cuomo announced that he will advance new legislation to create the “Affordable New York” housing program after the Real Estate Board of New York and the Building and Construction Trades Council of Greater New York reached a deal to replace the program previously known as 421-a. He discussed the new legislation on The Cats Roundtable with John Catsimatidis– a transcript of the interview can be found here.
We encourage you to read the summary below published by the The New York Housing Conference (NYHC) here.
New 421-a “Affordable Housing NY Program” Legislation
The 421-a real estate tax abatement which has been suspended since January 2016 has been rebranded as the “Affordable Housing NY Program” in legislation announced on Sunday by Governor Cuomo. The 421-a tax abatement had been previously restructured in June 2015 to provide 3 options for affordable rental housing developed which were to work in tandem with New York City’s Mandatory Inclusionary Zoning Program. An outer borough homeownership option and extended affordability were also features. However, the program is suspended until representatives of residential real estate developers and construction labor unions sign a memorandum of understanding regarding wages of construction workers performing work on 421-a projects.
The agreement reached by the two industry groups changes the terms of the program, requiring new legislation rather than a Memorandum of Understanding. Governor Cuomo’s new proposal essentially maintains the 421a framework previously passed but also includes the changes sought by the trade groups by introducing 3 new tax abatement options (Options E, F & G) for residential construction for eligible projects with at least 300 rental units with average wage requirements below 96th Street in Manhattan and the waterfront “Gold Coast” in Brooklyn and Queen. Projects of at least 300 rental units outside of these “enhanced affordability areas” may also opt in.
PROGRAM PASSED IN JUNE 2015 BUT CURRENTLY SUSPENDED (Options A, B, C & D)
- Only one application would be required, it would have to be filed within one year after completion, and construction benefits would be retroactive.
- The project would have to comply with the affordability requirements and other requirements for 35 years.
- Market rate rental units would be subject to rent stabilization during any period in which the actual monthly rent charged is below the vacancy decontrol threshold.
Eligible rental projects would receive:
- a 100% exemption for a construction period of up to three years; and
- a 35-year post-construction tax exemption (a 100% exemption during the first 25 years and an exemption equal to the percentage of affordable units during the last 10 years).
Rental projects would be required to choose one of three affordability options and comply with it for the entire benefit period:
Option A
- 25% of the units must be affordable: at least 10% at up to 40% of AMI, 10% at up to 60% of AMI, and 5% at up to 130% of AMI; and
- the project cannot receive any government subsidies other than tax-exempt bond proceeds and 4% tax credits.
Option B
- 30% of the units must be affordable: at least 10% at up to 70% of AMI and 20% at up to 130% of AMI.
Option C
- at least 30% of the units must be affordable at up to 130% of AMI;
- the project cannot receive any government subsidies; and
- the project cannot be located south of 96th Street in Manhattan or in any other area established by local law.
Option D Homeownership Projects
- a 100% exemption for a construction period of up to three years; and
- a 20-year post-construction tax exemption (a 100% exemption during the first 14 years and a 25% exemption during the last 6 years), subject to an assessed valuation cap of $65,000 per dwelling unit.
Homeownership projects would have to meet the following eligibility requirements:
- upon the first assessment following completion, the project must have an average assessed value not exceeding $65,000 per unit;
- each purchaser during the benefit period must agree in writing to maintain the unit as his or her primary residence for at least the first 5 years of ownership; and
- the project cannot be located in Manhattan or contain more than 35 units.
Extended Benefit Program
The Extended Benefit Program would only be available to rental projects that began construction prior to July 1, 2008 and qualified for a 20-year or 25-year 421-a tax exemption.
Owners who elect to participate would receive either:
- an additional 10 years of 50% exemption (for 25-year benefit properties); or
- an additional 15 years of 50% exemption (for 20-year benefit properties).
During this extended benefit period, the owner would be required to:
- rent at least 20% of the units to households whose income does not exceed 100% of AMI (and whose average income does not exceed 80% of AMI); and
- rent at least 5% of the units to households whose income does not exceed 130% of AMI.
The first requirement is identical to the existing affordability requirement applicable to such projects (it simply extends that requirement for an additional 10 or 15 years). The second requirement is an increase over and above the existing affordability requirement.
NEWLY PROPOSED PROGRAM (Options E, F & G)
- Creates three new affordability options specifically for rental sites with no less than 300 rental dwelling units
- Requires developers to pay an average hourly wage, including benefits and employer-sided taxes, of:
- $60 in Manhattan;
- $45 in Brooklyn and Queens;
- The wage rate is automatically raised by 5% every three years.
- Provides developments with a 100% abatement on all units- affordable and market rate- for the 35 years following construction. (Only affordable units receive the benefit for years 26-35 under current law in suspended program);
- Extends the regulatory period from 35 to 40 years, thereby restricting rents and occupancy to the designated AMI.
- Rental projects of 300+ units outside of the geographic region may opt in to receive the enhanced abatement by meeting the new requirements.
- Rental projects of 300+ units with at least 50% of units affordable at up to 125% of AMI or with a PLA can receive enhanced benefits without meeting the average wage requirement.
- Establishes complex wage enforcement system with third party fund administrator.
Option E
- Within enhanced eligibility areas (Manhattan below 96th St, Brooklyn Community Boards 1 & 2, Queens Community Boards 1 & 2)
- 25% of the units must be affordable: at least 10% at up to 40% of AMI, 10% at up to 60% of AMI, and 5% at up to 120% of AMI; and
- the project cannot receive any government subsidies other than tax-exempt bond proceeds and 4% tax credits.
Option F
- Within enhanced eligibility areas (Manhattan below 96th St, Brooklyn Community Boards 1 & 2, Queens Community Boards 1 & 2)
- 25% of the units must be affordable: at least 10% at up to 70% of AMI, 20% at up to 130% of AMI
Option G
- Within enhanced eligibility areas in Brooklyn Community Boards 1 & 2, Queens Community Boards 1 & 2
- 30% of the units must be affordable at up to 130% of AMI
- the project cannot receive any government subsidies;
The NY State Legislature must pass this bill to reinstate the 421-a program and adopt these new changes. The bill allows for a retroactive effective to January 1, 2016.
NYHC is supportive of the 421a Program to incentivize rental housing with affordability requirements. At this time, we do not have cost estimates for the proposed changes which would be incurred by the City of New York. The enhanced benefit period for all units, not just the affordable ones, may considerably add to program costs.
Capalino Can Help
Capalino has been working with clients in understanding how these changes apply to their sites, and identifying affordable housing and other development opportunities created by these new regulations.
Get in touch today to discuss the implications and opportunities for your sites and developments.
Claire Haaga Altman
Executive Vice President of Affordable Housing + Community Development
Work: 212-616-5839
Cell: 917-721-8103
Claire@nullcapalino.com
Richard Barth
Executive Vice President of Housing + Real Estate Strategies
Work: 212-616-5845
Cell: 917-860-2711
Richard@nullcapalino.com
Christopher Collins
Executive Vice President of Land Use + Real Estate Strategies
Christopher@nullcapalino.com
212-616-5848
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