Hochul’s New York Budget Proposal Thin On Affordable Housing Incentives
The governor’s $227 billion blueprint would expand a key deadline for the developer-friendly 421a incentive by four years
New York developers hoping for a lucrative tax abatement to spur new housing construction will have to wait until at least the spring as Gov. Kathy Hochul left it out of her proposed $227 billion budget proposal released Wednesday.
The governor reiterated her promise, made in January, to create 800,000 new homes over the next decade and pledged to spread new development across New York state.
“I’m committed to doing everything in my power to make the Empire State a more affordable, more livable, safer place for all New Yorkers,” Hochul said in a statement. “We will make bold, transformative investments that lift up New Yorkers while maintaining solid fiscal footing in uncertain times.”
But her budget included few incentives for new affordable housing that the real estate industry had been anticipating after lawmakers let a previous tax abatement, known as 421a or Affordable New York, expire last June. Any change will now depend on negotiations between the governor and state legislative leaders before the budget is due on April 1.
“There’s no specifics,” Gary Tarnoff, an attorney in Kramer Levin’s land use practice, said. “The budget doesn’t rule it out, but given the other things in there I wouldn’t say I’m optimistic. I’m hopeful, but I’m not optimistic.”
Instead, Hochul is proposing a four-year extension for owners to finish construction on their buildings and still qualify for 421a property tax breaks. The law currently requires developers to complete their projects by June 2026, but Hochul would give them until 2030 to remain eligible for an abatement.
The shift would affect 72 buildings comprising roughly 33,000 units that are still under construction, according to a Real Estate Board of New York (REBNY) survey. Half of those future homes are in Brooklyn, and 8,200 units are designated as affordable with rents set below market rates.
“The governor’s proposed four-year extension will, by itself, allow these projects to obtain financing and be built, thus ensuring much more rental housing and affordable housing for New York City,” said Daniel Bernstein, a member of Rosenberg & Estis’ tax incentives and affordable housing department.
REBNY, which represents owners and developers in New York City, expects to spend the next two months lobbying state lawmakers for an incentive program to make new construction more appealing.
“New York City urgently needs more rental housing, especially at below market rents, and, without a viable program to spur rental housing development by the private sector, this crisis will only get worse,” Basha Gerhards, REBNY’s senior vice president of planning, said in a statement. “The governor’s call for extending the 421a completion deadline is critical for ensuring that tens of thousands of badly needed rental apartments, including thousands of below market rate units, get built.”
But many Democratic lawmakers remain opposed to a property tax incentive similar to 421a and demand other pathways toward building affordable housing.
“421a must not return in any form,” state Sen. Jabari Brisport of Brooklyn tweeted last month. “Property taxes help fund our schools. A housing program that waives property taxes to spur construction is a housing program that steals money from kids to give to wealthy developers. If [the] private sector won’t build, government should.”
The governor’s budget provided more details about her goal of solving the state’s housing crisis with a mix of zoning changes, tax incentives and a $915 million investment in supportive housing.
Suburban communities, which could see significant amounts of new construction near train stations under Hochul’s housing proposal, would receive $250 million to upgrade sewer and water infrastructure and support local planning efforts.
Hochul also revived a proposal to do away with a cap on residential floor area ratio (FAR). The current law limits the FAR to 12 times the size of a lot, but its removal would allow denser high-rises to be built in neighborhoods zoned for them.
In addition, Hochul inserted a tax incentive for commercial building owners to convert their office spaces into housing. That measure coincided nicely with New York Mayor Eric Adams’ proposal to rezone swaths of Midtown Manhattan from 23rd and 42nd streets that encompass hundreds of Class B and C offices.
“There’s potential for more residential use, not just the Garment District but the areas from 43rd to 34th street,” Tarnoff said. “The rezoning and accompanying changes would open up those possibilities.”
Still, Hochul left out many tenant-friendly measures that state lawmakers had campaigned on last year (and that many landlords oppose). There was no mention of a good cause eviction bill that would limit landlords’ ability to evict tenants and tie rent hikes to inflation or 3 percent increases. And Hochul did not commit funding to the Housing Access Voucher Program, although that measure passed the state Senate Housing Committee before Hochul’s budget address.
The Metropolitan Transportation Authority was about to fall off a fiscal cliff, but the governor threw the agency a lifeline.
Facing a $600 million budget deficit that could balloon to $4.6 billion in three years due to lower ridership during the pandemic, the governor proposed sending the MTA a $1.3 billion annual bailout collected from an $800 million yearly payroll tax hike, an extra $500 million annual payout from New York City, and a share of future casino revenues.
The new funding would help the MTA avoid cuts to subway and bus service but would not stave off a 5.5 percent fare hike likely to go into effect in June. Some lawmakers said raising subway and bus fares to around $3 a ride by 2025 would not be on the table.
“Gov. Hochul’s plan for the MTA doesn’t make NY safer, more affordable or livable: it does the opposite,” state Rep. Zohran Mamdani of Queens tweeted Wednesday. “Amidst skyrocketing inflation, Hochul hikes the fare to $3, rubber-stamps 10-min waits and ensures NY fails to support working [people] left behind by the cost of living.”
And Mayor Adams, who noted the city already sends the state-run MTA $2 billion each year, was not happy about the additional ask.
“While we recognize the significant fiscal challenges the MTA faces, we are concerned that this increased commitment could further strain our already limited resources,” he said in a statement.
The governor had resisted the idea of raising taxes on the wealthy even after she won a four-year term in November, but she chose to nudge up payroll taxes from 0.3 percent to 0.5 percent and extend an expiring corporate tax rate for another three years.
Two years ago, then-Gov. Andrew Cuomo increased the tax on corporations earning at least $5 million in revenue from 6.5 percent to 7.25 percent to boost state revenues that had diminished during the pandemic. Hochul’s extension could bring in $800 million to $1 billion a year over the next three years.
State Republican leaders called the tax policies a “complete and unmitigated disaster” for families.
“This budget is merely a continuation of the tax-and-spend policies that are driving New Yorkers from this state in record numbers,” State Republican Committee Chairman Nick Langworthy said. “Despite all the new taxes and spending in this budget, this baseline budget will only get worse with an out-of-control state legislature that is hell-bent on enacting socialist policies that will bankrupt New York.”
At least one industry got a decent break. Hochul proposed increasing the annual cap for the state’s film tax credit from $420 million to $700 million a year and boosting state rebates for production costs from 25 percent to 30 percent.