Hochul Announces Long-Awaited Deal To Address New York's Housing Crisis

After months of deliberations and multiple extensions on the state’s budget deadline, lawmakers in Albany appear to have reached a compromise on housing.

The $237B budget deal, announced by Gov. Kathy Hochul in a Monday afternoon press conference, includes a replacement for the expired 421-a tax abatement program designed to spur more housing development, changes to density restrictions that could kick-start office-to-residential conversions, and new tenant protection measures.

Hochul described the budget deal as “parameters of a conceptual agreement,” and lawmakers are still hashing out final negotiations ahead of an anticipated vote later this week. 

“New York is in the throes of a housing crisis, and the consequences are so painfully evident,” Hochul said, calling the housing deal “transformative.”

“Taken together, this is the most comprehensive new housing policy seen in our state in more than 30 years,” she said. 

But reactions to the proposals so far have been overwhelmingly negative, with landlord lobbying groups and tenant advocates alike slamming pieces of the compromise.

“This housing deal has been widely panned because instead of doing anything to make New York more affordable, it has massive giveaways for the real estate industry,” said Ritti Singh, a communications organizer at tenant group Housing Justice for All. “If this is the deal that’s on the table, we really strongly oppose it, and tenants would be better off without it being passed at all.”

The deal addresses the top priority of New York City developers, a replacement for the 421-a tax abatement for rental housing development, which has been used for the majority of large-scale apartment projects in the five boroughs in recent years. The new abatement, dubbed 485-x, would reportedly be broader than 421-a and has the support of construction labor unions and left-leaning groups, according to The New York Times.

However, landlord lobbying group the Real Estate Board of New York wasn't impressed with the proposal.

“The new tax exemption program for housing production, 485-x, will produce less rental housing than its predecessor, 421-a,” REBNY President James Whelan said in a statement released immediately after the deal’s announcement.  

The deal would also extend the deadline for 421-a projects that started construction before the abatement expired by six years, giving more breathing room to developers that would have been ineligible for the break if they didn't deliver their buildings by 2026.

The extended deadline will have a huge impact on developers and new construction in NYC, Joy Construction principal Eli Weiss told Bisnow in a phone interview Monday.

“I know of many sites that people were not able to get financing as it came closer to the deadline. No lender was going to take that type of risk. It was all or nothing,” he said. “This is a really, really smart policy because it creates an immediate production now. Starting tomorrow, those sites can be reinvigorated. I think it’s going to have a huge impact.” 

The deal would also raise allowable density, known as the floor-to-area ratio cap, eliminating residential density maximums in Manhattan. That would allow for more office-to-residential conversions, which are restricted in certain parts of the city to buildings built before 1961. Changes to those rules could clear the way for more obsolete office assets to be replaced with much-needed housing developments.

Tenants will also get protections from evictions, although Hochul didn't use the term “good cause” in her press conference, a rallying cry for advocates seeking to limit rent raises above a certain level in all New York apartments.

A proposal leaked last week would make it more difficult for landlords to evict tenants living in market-rate apartments and would give tenants the chance to challenge rent increases above a certain threshold. But it would only apply to market-rate apartments that rent for up to 200% of fair market value and would exempt landlords with 10 units or fewer in their NYC portfolio.

The proposed legislation would also only apply to NYC by statute, while other municipalities upstate and on Long Island could opt into the protections. Additionally, no new buildings would be covered by the legislation for the first 30 years of their existence.

Housing Justice for All denounced the good cause proposals as “Swiss cheese,” alleging that the exemptions could exclude as many as 2.8 million tenants from protection. Hochul didn't specify which tenant protections are in the budget agreement.

Hochul also touched on the most controversial part of the proposed deal reported last week: changes to rent stabilization. 

The leaked deal would allow landlords to pass up to $30K of renovations on to tenants, up from the $15K permitted under the 2019 Housing Stability and Tenant Protection Act. Owners of apartments that have been vacant for two or more years following a 25-year tenancy could recoup even more in rent, according to a fact sheet circulated by Housing Justice for All. 

Landlords have railed against the law since 2019, arguing that the cap on rent increases has made it impossible for them to renovate units or maintain them at livable standards.

Even prior to the press conference, landlord groups expressed distaste for the proposal. Last week, landlord coalition Homeowners for an Affordable New York called it a “breathtaking failure to address vital and pressing issues.”

“This deal will not get any permanently vacant apartments back online. It does nothing to improve the financial stability of older rent-stabilized buildings providing the majority of affordable housing in New York City,” Community Housing Improvement Program Executive Director Jay Martin said in a statement. “This legislature and this Governor have abandoned the renters and owners of rent-stabilized housing for billionaire developers and massive corporation owners.” 

Tenant groups also criticized the changes. Housing Justice for All said the proposal would “encourage real estate speculation and incentivize landlords to aggressively pursue displacement and eviction.”

Speaking to Bisnow directly after Hochul’s press conference, Singh said the deal as it stands would allow landlords to pass on serious renovation costs to tenants, potentially destabilizing affordable housing options for tenants like disabled seniors and families — some of the groups that depend most on rent-stabilized housing.

“We’re really hurting for housing that people can afford,” Singh said. “Rent-stabilized housing is what keeps families in the city and keeps people still living here.”

Last week, New York City Comptroller Brad Lander, Public Advocate Jumaane Williams and 19 city council members wrote a letter to Hochul and state lawmakers asking them not to roll back any part of the 2019 law.

Landlord groups were also dissatisfied with the proposed changes to rent-stabilized housing, with REBNY's Whelan calling them “minor” and saying they would “fail to reverse the declining quality of that housing stock.”

Over the past few months, multifamily developers and owners have been vocal about the need for Albany to pass a housing deal this year after lawmakers failed to reach an agreement during last year's legislative session, despite Hochul's rollout of an ambitious housing agenda. 

Elected representatives went back and forth last year as they tried to hash out a compromise that included items to please tenant groups as well as proposals for developers. But they ended up unable to find a majority willing to vote for the proposals, which included good cause eviction protection and a 421-a replacement.

The aftermath of the state legislature’s failure saw apartment rents break new records in the summer months, amid high demand for housing among tenants. Rents have continued to climb in the months since, with median rents in Manhattan coming in at $4,350 a month in September and $4,230 in February.

The city’s overall housing vacancy rate is just 1.4%, according to the most recent NYC Housing and Vacancy Survey. The need for low-income rental housing is particularly acute, the same study found: The vacancy rate for free market apartments with rents of less than $1,100 per month was just 0.4%. 

The same study, conducted by the Census Bureau and the city’s Department of Housing Preservation and Development every three years, found that supply isn't keeping up with demand. The city added around 60,000 units to its housing stock last year, but the population grew by 275,000 households, City Limits previously reported.

In the meantime, foundation filings for planned multifamily developments have continued to fall. Developers filed plans for 985 units in March, according to the latest report from the REBNY. The number represents a 29% decline from the prior month and sits far below the numbers seen before 421-a expired.

One of the few voices complimentary of Hochul's deal is New York City Mayor Eric Adams, who released a statement Monday evening touting the budget agreement.

“This budget will be a win for New Yorkers,” Adams said.