NYC’s Lost Tax Breaks Could Be Long Island’s Win, Developers Say

Counties and municipalities in Long Island were rapidly confronted with a serious housing shortage at the onset of the pandemic. But developers say local governments’ new pro-development attitudes are bringing new, more diversified residential developments to the region.

Long Island, home to more than 100 disparate zoning codes, has developed a reputation for being a difficult place to build, discouraging some national developers from doing business in the region, experts said at Bisnow’s Long Island State of the Market event Thursday. But the island’s shortage of rental housing, combined with local governments’ recent pro-housing commitments, could be a boon for developers able to navigate the region’s bureaucracies.

“You have $3 rents on Class-A product that’s an hour east of the city. That’s not the case in New Jersey, it’s not the case in Connecticut, it’s not the case in a lot of places,” JLL Capital Markets Managing Director of the Americas Steven Simonelli said Thursday. “Rents hold up here.”

Long Island has a chronic undersupply of housing, Community Development Corporation of Long Island CEO and President Gwen O’Shea said. During the 1980s, more than 80,000 units of housing were being built annually in Nassau and Suffolk counties, she said — but by 2010, that was just over 1,300 units.

Long Island’s lack of inventory signals a huge problem for the region’s economic sustainability, AvalonBay Communities Senior Director of Development Danielle Molaison told the audience at Bisnow’s event in the Garden City Hotel.

“Especially on Long Island, there is a very low supply of rental stock,” she said. “In most suburban communities, at least in the Tri-State area, something like 35% of the housing stock is rental. Here on Long Island, it's barely 20%.”

The dearth of housing availability is pushing up prices even as sales listings and inventory decline, according to Douglas Elliman’s Q3 Long Island market report. Median sales prices for single-family homes broke new records in nine of the past 10 quarters, while inventory is down 4.4% from a year ago, the report found. Condos, too, are experiencing a similar crunch: almost 11% fewer were listed on Long Island during Q3 compared to a year ago.

In regions like the Hamptons, the lack of housing at all income levels has created pressure on everything from retail and hospitality to public education. Rent growth is likely to sustain in the coming years due to supply issues and development timelines, experts said at Bisnow’s event. But local governments in Long Island municipalities like Riverhead are paying attention and trying to fix the problem, RXR Senior Vice President Rebecca D’Eloia said. 

“When you can work with a municipality that has signaled it’s ready to build and wants to work with the development community, it makes a huge difference,” she said. “So they have made a real effort to try to bring concentration into the downtown and have entitled hundreds of units, particularly a lot of workforce units.”

Demand for workforce housing in particular is through the roof, O’Shea said. One 45-unit workforce housing development hasn’t officially started accepting applications, but the building has received more than 1,200 inquiries, she said.

Local rezoning initiatives in villages and municipalities throughout the region, designed to help diversify housing offerings, are crucial to providing more diverse housing options to local populations, in addition to benefiting developers, D’Eloia said.

“In Westbury, they have the notion of micro-units, that's maybe not affordable housing with a capital A, but it is units that are affordable to a young, up-and-coming professional class,” she said. “We're excited about Riverhead, too, because we see that as an opportunity to provide some diversity in housing there as well.”

Another factor that could boost development in Long Island in the coming months and years is a combination of tax incentives. The death of New York City’s 421-a tax abatement could drive developers looking to build in and around the five boroughs into Long Island, developers said on stage.

“Theoretically, the opportunity on Long Island to build rental, and increased supply or increased demand, would benefit from the stall in 421-a in New York City,” Avalon Bay’s Molaison said. “AvalonBay had a strong presence building when it did apply in New York City, and we've definitely downsized any future development opportunity in Manhattan, as well as Queens and Brooklyn.”

D’Eloia said 421-a’s expiration alone won’t push more developers to Long Island. Those already working there need to be better at quantifying how more housing boosts local economies, in order to convince municipal governments, she said. And developers also need to get better at explaining how PILOT offers — where developers can make payments in lieu of taxes — can benefit communities in order to avoid local opposition.

“I think that if we can do that, then maybe we can capture some of that development interest from people who, right now, just will not seek building permits in the five boroughs without 421-a,” she said.