Gov. Kathy Hochul this week released a proposed revision to the 421-a “Affordable New York” program, in connection with her FY2023 Executive Budget proposal. The new program would be known as the “Affordable Neighborhoods for New Yorkers” (ANNY) tax incentive and would be contained in Section 485-w of the Real Property Tax Law. The proposal follows a framework similar to that of the existing 421-a program, but with deeper affordability required and with new affordability options for small rental projects and homeownership projects.
The legislation would simplify the affordability options currently allowed, reducing the number of options from six to three:
- A new Option A would apply to any rental project with 30 or more units. This option would require that 25% of the units in a building be affordable, with:
- 10% of the units affordable to households at or below 40% of area median income (AMI)
- 10% of the units affordable to households at or below 60% of AMI
- 5% of the units affordable to households at or below 80% of AMI
This option is similar to the current Option A under 421-a, except that the top income band is lowered from 130% of AMI to 80% of AMI.
- For rental projects with fewer than 30 units, a new affordability Option B would apply, requiring a lower level of affordability. Under Option B, 20% of the units must be affordable to households at or below 90% of AMI.
- For homeownership projects, a new Option C would require 100% of the units to be affordable to households at or below 130% of AMI.
Option A generally aligns with the Mandatory Inclusionary Housing (MIH) Option 1 under the Zoning Resolution, which requires that affordable housing be provided in an amount equal to 25% of the floor area on a zoning lot, although MIH Option 1 allows an income band as high as 130% of AMI, which is not permitted under ANNY Option A. The other two ANNY options do not have an analogous option under MIH.
Similar to those in the existing law, the tax benefits provided by the new legislation would extend for 25 years following construction, and a partial tax exemption, equal to the percentage of units in the building that are affordable, would extend for an additional 10 years. The proposal would eliminate the 35-year full tax exemption in the current law for large projects in “enhanced affordability areas.” Ownership projects under Option C would receive a 40-year tax exemption.
One notable new feature of the proposal is that for rental projects, the affordability requirements apply in perpetuity, notwithstanding that the tax benefits will have ended after 35 years. For homeownership projects, the affordability restrictions only survive for the 40-year period of the tax exemption. These restrictions apply on resale of the home, requiring that the home be sold to an income-qualified buyer during the 40-year period and that the owner use the home as a primary residence for at least five years.
The new program retains many of the features of the existing law, such as the construction wage requirement for projects of 300 or more units in certain areas of Manhattan, Brooklyn and Queens, a prevailing wage requirement for building service workers, and rent stabilization requirements.
It remains to be seen how the proposal will emerge from the legislative process. The real estate community is eager for a plan that strikes the right balance between creating incentives for affordable housing and allowing projects to be economically viable.