NYC Takes Major Step Towards Creating More Affordable Housing Under New Tax Incentives Programs

October 8, 2024

City Publishes Proposed Rules for Two New Tax Incentives Programs: 485-x and 467-m

485-x and 467-m Tax Incentives Programs Part of the Administration's Successful Albany Housing Agenda to Address City's Housing Crisis

New York City, NY - The New York City Department of Housing Preservation and Development (HPD) has reached a significant milestone in its mission to expand affordable housing by publishing the proposed rules for two new as-of-right State tax incentives programs: Affordable Neighborhoods for New Yorkers (Real Property Tax Law Section 485-x) and Affordable Housing From Commercial Conversions (Real Property Tax Law Section 467-m). The publication of the rules is a prerequisite for a public hearing and the eventual finalization of the two programs' rules, allowing for the full launch of these initiatives early next year. The 485-x program offers property tax exemptions to developers who construct new residential housing with the inclusion of affordable housing or new small rental residential buildings with rent stabilized apartments, serving as a powerful incentive to stimulate residential construction across New York City, where we face a historically low vacancy rate and housing shortages. Meanwhile, the 467-m program offers a tax incentive to support the inclusion of affordable housing in properties converting from commercial to residential property.

As the City confronts the urgent housing and homelessness crisis, the rules for these transformative programs are now open for public review and comment, paving the way for a hearing and subsequent final rule-making. This important public engagement is an important step to ensure that these programs are implemented effectively to meet the pressing housing needs of New Yorkers.

"This State legislative session, we fought for and secured the passage of a transformative housing package to build the homes New Yorkers deserve thanks to our many partners in State government, labor, advocacy and industry who know that the key to addressing our housing crisis is to build more housing," said Deputy Mayor for Housing, Economic Development and Workforce Maria Torres-Springer. "Publishing the rules for the as-of-right State tax incentive programs is a critical milestone to enact this legislation and supports reaching New York City's moonshot goal of creating 500,000 new units of housing in the next decade. Coupled with 'City of Yes for Housing Opportunity,' we have a generational opportunity to finally start moving the needle on the city's housing supply and tackle this crisis together."

"In an effort to creating more housing across all neighborhoods to meet the needs of New Yorkers, we've pushed forward an aggressive agenda that includes new tools like 485x and 467m," said New York City Executive Director for Housing Leila Bozorg, "I'm excited to begin the rulemaking process for these important initiatives, both of which complement our City of Yes for Housing Opportunity proposal, which will ultimately make housing more accessible in every neighborhood in New York City."

"New York has the most productive public-private partnership for affordable housing production and preservation in the country. Time and again, we've sharpened the tools necessary to deliver the housing that keeps our city competitive and attractive to investment," said Commissioner Adolfo Carrión Jr. "Earlier this we collaborated with the state legislature and are now publishing the rules of the road for our private sector partners to expand housing supply-just as they've done so many times in the past. This partnership will drive the creation of much-needed housing across our city, meeting future demands, and I'm excited about the thousands of new homes that will be built as a result."

This announcement is a vital part of the City's ongoing efforts to produce thousands of new homes, including a substantial number of affordable units. Given the current housing challenges the implementation of these programs is more crucial than ever.

From Theory to Reality: Significance of Rule Making

Rulemaking is the critical link between enacting new housing legislation and the implementation of the programs that will create new homes for New Yorkers. Rulemaking is essential for the success of the new 485-x and 467-m programs. Following the passage of new legislation, HPD must undergo a critical part of the process, creating the rules which lead to a program's success and effectiveness. These rules will provide the framework necessary to implement the new programs, ensuring they achieve their intended goals of expanding affordable housing in our City. The proposed rules are now posted for public review, kicking off an important public process that includes the opportunity to submit written comments both before and at a public hearing. After considering feedback, HPD will review feedback and make any necessary changes before the rules are finalized.

The final rules will take effect 30 days after they are published, and HPD anticipates an effective date in January 2025. While HPD will not be able to approve applications to the 485-x and 467-m programs until the final rules take effect, interested developers can begin reviewing and submitting the workbook and application materials once these materials are available on HPD's website. All projects must comply with the final, adopted rules.

485-x Details

Affordable Neighborhoods for New Yorkers (485-x) will be implemented by HPD to incentivize the inclusion of permanently affordable and rent stabilized housing in new, multi-family construction projects and eligible conversions.

Requirements include:

• Rental projects with 150 units or more located in select areas, including Manhattan south of 96th Street, western Queens, and parts of Brooklyn, will require at least 25 percent of homes to be income restricted at a weighted average of 60 percent of area median income (AMI).
• Rental projects citywide with 100 units or more will require at least 25 percent of homes to be income restricted at a weighted average of 80 percent of AMI.
• Rental projects citywide ranging from six to 99 units will require at least 20 percent of homes to be income restricted at a weighted average of 80 percent AMI.
• Rental projects between six and 10 units, outside of Manhattan can opt for a smaller benefit and permanently restrict at least 50 percent of units as rent stabilized units.
• Homeownership projects outside of Manhattan with an assessed value of $89 or less per square foot and where homeowners agree to reside in the home for no less than five years after acquisition.

Through the program, construction workers on large projects of 100 units or more will be guaranteed a minimum wage of $40 per hour. Workers on projects with 150 units or more located in select areas of Manhattan south of 96th Street, western Queens, and parts of Brooklyn will receive between 60 and 65 percent of the greatest prevailing wage rate within a classification or between $63.00 and $72.45 per hour, whichever is less, escalating at 2.5 percent per year. Across the City, building service workers in buildings with 30 units or more will receive prevailing wages unless they contain only affordable housing with not less than 50% of those affordable to households at or below 90% of AMI.

The program also encourages new homeownership development in the outer boroughs with changes designed to encourage family-sized homeownership units.

467-m Details

The 467-m program provides a tax incentive for the conversion of eligible commercial buildings to residential housing with an affordable housing requirement. Earlier this year, HPD published an FAQ for developers that contains critical information to facilitate the application process for potential participants. The link to the FAQ can be accessed by visiting HPD's website and looking for 467-m-requirements-faq.pdf. Visitors to the site can also review additional technical materials released in June that provides eligibility requirements, an expression of interest form, and general guidance that informs and assists interested participants ready to begin evaluating their participation options.

467-m key eligibility requirements include:

• Conversion of a non-residential property into a rental multiple dwelling with six or more apartment units.
• Applying within one year of construction completion.
• Beginning construction between January 1, 2023 and December 31, 2031.
• Completing construction on or before December 31, 2039.

Affordability requirements include:

• At least 25 percent of units must be affordable to households with a weighted average of 80 percent AMI or below, with no more than three income tiers.
• Highest income tier is 100 percent AMI and at least 5 percent of affordable units must be for households at 40 percent AMI or below.
• Affordable units must remain permanently affordable and rent stabilized.

Given the urgency of the housing crisis, the program is designed to provide the deepest benefit to developers who start construction on or before June 30, 2026.

The majority of underused office space is located in Manhattan below 96th Street. This includes many neighborhoods with higher-than-average rents, extremely low rental vacancies, and particularly expensive construction costs due to the area's density. This makes it extremely difficult to build income-restricted housing in an area that sorely needs new affordable apartments, so the program offers the highest tax benefits to conversions in Manhattan below 96th Street. Regardless of location, the tax exemption decreases as the housing ages.

Interested developers can learn more about the program and submit an interest form to receive updates from HPD on the program's status.

City of Yes for Housing Opportunity

The push to advance the new tax incentive programs originates from the Administration's core housing principles: create a City of Yes where we are building as much new affordable housing as possible across all five boroughs. The publication of the proposed rules comes just months before a critical vote for the City of Yes for Housing Opportunity campaign, which aims to create more accessible and affordable housing options for all New Yorkers.

By providing developers with the necessary incentives to expand housing production, the City can meet its broader strategy to tackle the housing crisis. This initiative emphasizes the City's commitment to increasing the supply of affordable housing while ensuring that diverse communities thrive. Together, these new as-of-right incentives and the City of Yes for Housing Opportunity represent a powerful collaboration to build a more equitable and inclusive New York City.

New York City has broken numerous production records in the past two years for much-needed affordable housing in the five boroughs. In calendar year 2023, HPD and HDC closed on financing for the creation of an all-time record-breaking 14,227 new affordable homes - 51 percent of which were facilitated by the 421-a(16) affordable housing tax incentives program (the predecessor to 485-x).

Overall, FY 2024 is the highest new construction production by fiscal year on record for the agency with 14,739 new construction unit starts. Additionally, nearly 60% of the agency's new construction production was from as-of right incentive tools including 421-a and Inclusionary Housing.

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"Investing in affordable housing is an absolute priority for the future of our city," said First Deputy Mayor Sheena Wright. "This additional $2 billion in funding for preserving and building affordable and public housing is a huge win for our community, and we are grateful for our partners in the City Council for recognizing how important housing is for all New Yorkers. Our administration is committed to our expansive housing agenda. With the 'City of Yes for Housing Opportunity' and combined with this significant investment today, we are confident in our trajectory to increase housing opportunities for all New Yorkers."

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