'Big Bang Of Housing': N.Y. Passes Budget Deal With Development Tax Break, Good Cause Eviction Protection

For the first time in years, New York has hope in the fight to address its housing crisis.

State lawmakers passed the annual budget Saturday afternoon, including a package of new housing legislation addressing items high on the list of priorities for landlord, developer and tenant advocacy groups. 

“I think this is really significant,” Rachel Fee, executive director of the New York Housing Conference, told Bisnow Saturday morning. “Albany has come together on really important issues on a range of policy solutions to address our housing shortage. I think they should be commended on making this much progress, considering where we were last year.” 

The mixture of new development incentives, zoning reform and renter protections will have a massive impact on the real estate industry, Rosenberg & Estis Member Attorney Daniel Bernstein said. 

“We’re entering into a new era,” he said. “This is the Big Bang of housing legislation — both for development and for the regulation of housing.”

The budget also contains new penalties for landlords of unlicensed cannabis shops, which have proliferated amid a disjointed rollout of regulated dispensary laws.

The biggest change for commercial real estate in the budget is a successor program to the 421-a development tax abatement, now called 485-x.

The new program includes two main options for developers who want to claim an abatement: set aside a quarter of units in a large building for renters making an average of either 80% or 60% of the area median income, and another with 20% of units set aside at an average of 80% AMI. 

The law allows developers to peg rents to three income bands, none of which can be higher than 100% of AMI. 

“We believe that it is very, very important to have those tax incentives as part of the availability for developers,” said Valerie White, senior executive director for Local Initiatives Support Corporation NY.

In both instances, the property would be exempt from property taxes for between 35 and 40 years. In exchange, the income-restricted apartments would have to be permanently affordable.

The return of a tax abatement is crucial to housing development, Joy Construction principal Eli Weiss told Bisnow late Saturday afternoon. 

“I think it's great that people finally realized that when there was no abatement, housing production dropped historically,” he said.

It's impossible to please everyone, he said, but at least with the 421-a extension through 2031 and the new 485-x program, developers can get going with adding housing supply immediately.

Housing advocate Fee expressed similar feelings.

“I would have liked to have seen deeper affordability, but I think they landed in a place where the incentive is going to get developers to build,” Fee said.

The budget would also grant a tax break for up to 35 years for residential conversions of commercial properties under similar terms: 25% of all units permanently reserved as affordable for renters at 80% of AMI.

Developers converting commercial nonhotel space to residential in Manhattan south of 96th Street can be exempt from a majority of property taxes for 35 years if they start construction before 2026. The tax break for developers who start work by 2028 runs for 30 years.

The provision for permanent affordability could cause some hesitation for developers and lenders, Bernstein said.

“We’ve never seen permanent affordability. It has always been for a term of time,” Bernstein said. “There was always some way that an affordable unit could eventually exit affordability and rent stabilization.”

Also potentially triggering caution for landlords is a new good cause eviction law, which made it through the budget gauntlet. It will apply to New York City with an opt-in for other municipalities across the state.

New York's good cause gives tenants the right to appeal rent increases beyond the lower of 10% or 5% plus the annual increase in the consumer price index, and it provides a right to renewal. 

But it will also only apply in cases where the landlord owns more than 10 units in their rental portfolio. It allows apartment owners to evict tenants if they seek to demolish or withdraw a unit from the market and allows rent increases to cover “significant” repairs. 

Apartment owners will have to give notice to tenants where their units fall under good cause eviction protections. All new buildings are exempt for 30 years after their completion date, an exemption that also applies to buildings built since 2009.

Tenant advocates have called the law “Swiss cheese” and estimate that it will cover just a third of tenants. 

“Despite hard-fought efforts by tenant allies in the legislature to protect renters, Governor Hochul’s Good Cause Eviction is so full of holes that landlords will drive a fleet through it,” Housing Justice for All Coalition Director Cea Weaver said in a statement. “Millions of families around the state will be excluded entirely and few tenants eligible for the protections will be able to exercise their rights.”

Both 485-x and good cause are due to sunset in 2034 — meaning there will likely be fierce debate over the impact of both in a decade, Rosenberg & Estis’ Bernstein said.

The budget deal also amends the 2019 Housing Stability and Tenant Protection Act, allowing owners of rent-stabilized units to pass on higher costs of renovations to tenants than before.

Landlords have been restricted to passing on a maximum of $15K in improvements to tenants. The new law raises that to $30K and grants up to $50K for units where tenants have been in place for 25 years or more. 

The new individual apartment increase isn't nearly enough for landlords who have been battling against soaring costs for the past five years without being able to raise rents to cover them, Small Property Owners of New York Board Member Joyce Holland said. Holland and her family own four buildings ranging between four and eight units each.

“It's not workable,” she said. “At all.”

Landlord group Community Housing Improvement Program argued the changes won't help landlords bring vacant rent-stabilized apartments back online.

“There was a real opportunity here to improve things and get 20,000 vacant units back on the market in the coming months,” CHIP Executive Director Jay Martin said. “We will see vacancies continue to rise as rent-stabilized owners struggle to maintain their buildings that already operate at a loss.”

But tenant advocates say the adjustment undermines the protections afforded to tenants in 2019. 

“We’re really concerned about the changes to individual apartment increases,” Association for Neighborhood Housing and Development Director of Organizing and Advocacy Emily Goldstein said. “We know exactly what happened pre-2019, under the old setup where IAIs were a really lucrative incentive for landlords to harass out tenants so that they could increase rents and increase profits. That was illegal, but that doesn’t mean it didn’t happen all the time.”

Overall, even with incentives to create new units and protections that should help preserve the rights of some tenants, the proposals don't go far enough in addressing the housing needs of the lowest-income New Yorkers, Goldstein said. 

“There’s no money in this budget for 100% affordable housing. There’s no funding for a new voucher program,” she said. “It’s really disappointing and, I think, says something alarming about where the state is when it comes to trying to solve the homelessness and affordability crisis.”

Progressive lawmakers were vocal during Saturday morning’s vote about their desire to see more tenant-friendly housing laws.

“This isn’t a deal on housing, it’s a handout to the real estate industry,” state Sen. Jabari Brisport said before voting against the budget bill on the Senate floor early Saturday afternoon. “Gov. Hochul has no interest in doing what the public wants or needs.”

Overall, however, the Senate reached a compromise on housing, hopefully making way for New York to begin addressing its housing supply and affordability crises, Sen. Brian Kavanagh said as he cast the closing vote early Saturday afternoon.

“This is not perfect, but this is a giant step forward in the completion of the budget that is addressing our housing crisis,” he said.