United States: Governor Cuomo Releases "Affordable Housing NY Program" To Resolve Section 421-A Tax Exemption Impasse


Last week, Governor Andrew Cuomo released a long-awaited solution to New York's 421-a tax exemption impasse as a part of the State Executive Budget. Known as the "Affordable Housing New York Program," the Executive Budget includes much-needed amendments to Section 421-a that will memorialize the agreement reached among Governor Cuomo, the Building and Trades Council of Greater New York and the Real Estate Board of New York. If the proposed changes remain a part of the State's Budget Bill, New York developers will see change as early as April 1st – the statutory deadline to complete budget negotiations in New York State.

Summary of Previously Enacted Changes to Section 421-a

The Rent Act of 2015 made numerous changes to the 421-a tax exemption that will become effective immediately upon passage of the 2017-2018 Budget, including:

  • Changes to the rent registration requirements for market-rate rental units in projects that receive the 421-a tax exemption. Previously, any rental unit in a building with the 421-a tax exemption was required to register with the New York State Division of Housing and Community Renewal. Going forward, only units with rents that are within the Rent Stabilization Laws will be registered. Units with rents that exceed the maximum permissible rents determined by the Rent Guidelines Board will be free-market.
  • Affordability restrictions will be for a period of 35 years in buildings with affordability requirements.
  • The current two-part application process for the 421-a tax exemption will be changed substantially. Benefits will be applied for only after completion of construction (i.e., after issuance of either a full temporary certificate of occupancy or permanent certificate of occupancy for the building eligible for benefits), and the benefits will be retroactive as opposed to available during construction as they were in the past.
  •  The Affordable New York Housing Program will be available for rental and homeownership projects if (1) construction was commenced on or before December 31, 2015, and (2) the projects did not receive benefits prior to the enactment of the Rent Act of 2015.

Summary of Rental Benefits

Benefits will be geared primarily toward rental projects and will include a 100% real estate tax exemption for up to three years during the construction period, and an additional 35 years thereafter. For the first 25 years, projects will receive a 100% tax exemption. During the remaining 10 years, the exemption will be equal to the percentage of affordable units in the project. Every rental project will be required to meet one of the following three affordable housing options in order to receive the 421-a tax exemption:

Option A

  • 25% of the units must be affordable, with at least 10% affordable at up to 40% of the area median income ("AMI"), 10% at up to 60% of the AMI, and 5% at up to 130% of the AMI; and
  • This option also precludes the developer from receiving any governmental subsidies other than tax-exempt bond proceeds and 4% tax credits.

Option B

  • 30% of the units must be affordable, with at least 10% affordable at up to 70% of the AMI and 20% at up to 130% of the AMI.

Option C

  • At least 30% of the units must be affordable at up to 130% of the AMI;
  • This option also precludes the developer from receiving any government subsidies; and
  • The project cannot be located south of 96th Street in Manhattan or in any other area established by local law.

Summary of Homeownership Benefits

Although the Rent Act of 2015 was heavily focused on mixed-income rental properties, there are still options available for condominium and cooperative developers seeking to build homeownership projects outside of Manhattan. Under the law as proposed, eligible homeownership projects will be eligible for a 100% real estate tax exemption for up to three years during the construction period, with an additional 20-year exemption thereafter. For the first 14 years, projects will be eligible for a 100% exemption. Thereafter, projects will be eligible for a 25% exemption for the remaining six years, subject to an assessed valuation cap of $65,000 per unit.

Homeownership Project Eligibility Criteria

  • Projects must be located within the four boroughs outside of Manhattan, including Brooklyn, Bronx, Queens, and Staten Island;
  • Homeownership projects shall not contain more than 35 residential dwelling units;
  • Condominium and cooperative homeowners must agree to use their home as their primary residence for at least five years after the date of purchase; and
  • Upon the first tax assessment following construction completion, the condominium or cooperative project must have an average assessed value that does not exceed $65,000 per dwelling unit.

Summary of Extended Benefit Program for Certain Existing Projects Receiving the Section 421-a Tax Exemption

In addition to the above requirements, the Rent Act of 2015 also created extended benefits for rental projects that would be available for certain projects that: 1) commenced construction prior to July 1, 2008; 2) include affordable units; and 3) previously qualified for either a 20-year or 25-year tax exemption under the previous version of the law.

In order to qualify for extended benefits, landlords would need to continue to maintain at least 20% of the units for households whose income does not exceed 100% of the AMI, and whose average income overall does not exceed 80% of the AMI; and the landlord must agree to rent an additional 5% of the units to households whose average income does not exceed 130% of the AMI.

Qualifying rental owners who participate in the extended benefits program will receive:

  • A 50% tax exemption for an additional 10 years if the original tax exemption was for 25 years; or
  • A 50% tax exemption for an additional 15 years if the original tax exemption was for 20 years.

Summary of Newly Added Provisions to Section 421-a

Governor Cuomo's version of the 2017-2018 Executive Budget as written would resurrect the agreed-upon provisions of the Rent Act of 2015, while requiring developers of large rental projects with 300 or more units in an Enhanced Affordability Area to pay workers certain hourly wages and benefits, while meeting robust affordability requirements.1 The newly added provisions also create an opt-in process for eligible projects and establish mandatory reporting and enforcement of the wage and benefit requirements.

Summary of Wage Requirements for Projects with 300 or More Units

Developers of rental projects with 300 or more units in an Enhanced Affordability Area must pay certain wages and set aside a certain number of units as affordable housing in order to be eligible for the 421-a tax exemption.

To meet the wage requirement, the developer must pay an average hourly wage of $45 for projects in Brooklyn and Queens; and $60 for Manhattan projects. These hourly wages are set to automatically increase every three years at a rate of 3%.

For these large projects, the value of the tax exemption is 100% for 35 years after the construction period. The affordability restrictions shall remain in place for 40 years from the date of commencement of benefits, which means that developers will be required to maintain affordability for an additional 5 years after the exemption expires.

While the wage and benefit requirements are aimed at large projects within an Enhanced Affordability Area, projects with 300 or more units outside such areas may also opt-in and take advantage of the extended benefits which are available under this new option.

Although the wage requirement is mandatory for large-scale projects in an Enhanced Affordability Area that wish to receive the 421-a tax exemption, there are two ways to opt-out: 1) set aside at least 50% of the units as affordable up to 120% of the area median income; or 2) enter into a Project Labor Agreement.

Summary of Affordability Options for Projects with 300 or More Units

Option E

  • At least 25% of the units must be affordable, with at least 10% of those units affordable at up to 40% of the AMI, 10% at up to 60% of the AMI, and 5% at up to 120% of the AMI.
  • This option also precludes the developer from receiving any governmental subsidies other than tax-exempt bond proceeds and 4% tax credits.
  • This option is available within enhanced areas, including Manhattan below 96th Street, Brooklyn Community Boards 1 & 2, and Queens Community Boards 1 & 2.

Option F

  • At least 30% of the units must be affordable, with at least 10% of those units affordable at up to 70% of the AMI, and 20% at up to 130% of the AMI.
  • This option is available within enhanced affordability areas, including Manhattan below 96th Street, Brooklyn Community Boards 1 & 2 and Queens Community Boards 1 & 2.

Option G

  • At least 30% of the units must be affordable at up to 130% of the AMI.
  • This option is available within Brooklyn Community Boards 1 & 2 and Queens Community Boards 1 & 2.
  • This option also precludes the developer from receiving any governmental subsidies.

Reporting and Monitoring Requirements for Projects with 300 or More Units

For large-scale projects with wage mandates, the proposal also requires developers to hire an independent monitor to provide a certified payroll report to the New York City Department of Housing Preservation and Development ("HPD") annually. The proposed law also requires a third-party fund administrator to handle underpayment of benefits, and explicitly limits a private right of action in enforcing the reporting and monitoring requirements.

Next Steps

Stroock will closely monitor the progress of the Executive Budget and any proposed changes that might impact the 421-a tax exemption.


1 Enhanced affordability areas include certain neighborhoods in Brooklyn, Manhattan and Queens, as defined in more detail by the proposed revisions to Section 421-a.

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