‘You Can’t Lease Them Anyway’: The Most Common Affordable NYC Apartments Struggle To Find Tenants

The rent is too damn high for a lot of tenants in New York City — even in many of its income-restricted apartments.

Developers have lamented that the expiration of the 421-a tax abatement program has prevented them from building new housing, but the majority of the income-restricted units developed under the most recent iteration of the program have been difficult to fill, developers and city officials say.

“One of the real truths that's been spoken is that the affordability that was provided under the 421-a that we had is too high,” Tricia Dietz, assistant commissioner for housing incentives at the NYC Department for Housing Preservation and Development, said at Bisnow’s Multifamily Development and Investment conference last month.

Nearly two-thirds of the income-restricted units built between 2017 and 2020 using the Affordable New York program, 421-a's successor, were reserved for those making up to 130% of the city's area median income, according to a 2022 report from city Comptroller Brad Lander. 

That means those units are being listed at rents deemed affordable to individuals making more than $128K a year, or $165K for a family of three. That means the majority of one-bedroom apartments built through 421-a would rent for more than $3,400 per month. A family of three could pay up to $4,130 for a two-bedroom unit.

“130% AMI was too high for many of the different neighborhoods and districts,” Dietz said. “That affordability is not affordable.”

The higher the income band, the harder it is to lease those apartments, developers said onstage at Bisnow’s event.

“We do some things in Brooklyn and Queens where the 130 AMI [level] is sometimes higher than the market rate,” MNS Real Estate CEO Andrew Barrocas said.

“You can’t lease them anyway,” Laura Rog, senior director at L+M Development Partners affiliate LMXD, said in response to Barrocas' comment.

Few renters who make well over six figures in annual income are willing to put in the work to apply for the city's housing lottery process, known as Housing Connect, and endure the uncertainty of waiting to see if they will be approved, Barrocas said. 

When a tenant could sign a lease for a market-rate apartment that has the same price tag within two weeks, there’s little incentive to wait. The benefit would be longer term — those apartments do enter the city's rent-stabilization program, which means a tenant could pay below market-rate rents in the coming years.

While seen as essential by developers, the 421-a tax abatement has also been controversial. Lander's report found that by adding exemptions and abatements instead of changing the city’s property tax system, 421-a cost taxpayers roughly $1.8B in lost revenue in 2022.

But since its expiration, housing development in the city has plummeted. Developers filed plans for just 985 units across 24 buildings in New York City last month, according to a Real Estate Board of New York report, down 29% from February and a far cry from the pace of construction in 2022 when the program expired.

The tax break has been seen as a handout to developers, Douglaston Development CEO Jed Resnick said. But without it, and the market-rate units it allows developers to build, multifamily developers have struggled to find capital willing to invest in projects.

“This isn't about how much money can a developer make building a building,” he said. “This is about a building producing yield that attracts capital so that it can get built at all.” 

Many developers say that building affordable housing in the five boroughs is impossible today without a hefty subsidy, even as New Yorkers increasingly feel the pinch of housing costs.

“Even if you pencil the land at zero dollars, it doesn’t make sense as a rental without 421-a,” Barrocas said.

But even with the tax break, developers found themselves in a tough spot, Barrocas and Resnick said in separate interviews after Bisnow’s event. They would take the subsidy and the tax break, build some units at a higher income level and run tenant education campaigns so that moderate and higher earners could learn that they are eligible for affordable housing.

In the meantime, though, developers and owners would be stuck with delays filling the units restricted for those making up to 130% of AMI.

“There’s some that take two, three years to rent out,” Barrocas said. “I've seen apartments that have lingered for years.”

Fewer than 1,000 units affordable for those making up to 60% of AMI were built between 2017 and 2020, according to the comptroller report, but those are the apartments where there is the most demand.

In January, Fetner Properties had three multifamily buildings under construction in New York City. It’s more than the firm normally takes on at the same time, said CEO Hal Fetner, but with the expiration of New York state’s 421-a tax break and the June 2026 deadline for completing construction fast approaching, he said he didn’t have much choice.

Three months later, the first of those buildings is open at 266 W. 96th St. on the Upper West Side. It has 171 new residential units, with 67 reserved as affordable housing under the tax abatement program.

Thirty-five of those units are set as affordable for those making 120% AMI. The remaining 32 units are split into smaller slices of lower income brackets: 13 units at 80% AMI, eight units at 70% AMI and 11 units at 30% AMI.

“We had over 100,000 applications for those 67 units,” Fetner said. “The state of affordable housing in New York City is so dire.”

But there was a stark contrast between the different income levels at the building. More than 96,000 applied for the 32 lower-income units, with the remaining 3,600 applications for the 35 units at 120% AMI level, Fetner said. 

“We are so, so far behind in our housing stock and our creating of our housing,” he said.

The reason that developers have chosen to build affordable units at the higher end of the income bands is because developers need the higher rents in order to subsidize the reduced prices for the lower-income units, Fetner said.

“We have to hit certain economics, and we know what the market rate units are going to generate,” he said. “If it’s under 80% AMI, that rent that an affordable market moderate resident is paying is not covering the expenses for that building.”

Ultimately, the city needs to act soon if it wants to stimulate housing production — whether that’s a 421-a replacement or something altogether new, Resnick said.

“We're short hundreds of thousands of housing units. We're not going to be able to keep up with population growth and demand just through city subsidy and state-subsidized affordable housing construction and fancy market-rate condos,” Resnick said. “That's not enough.”