Introduction
There is a new tax incentive program in New York that in essence renews the now-expired 421-a program, but developers must file right away—by December 14, 2024—to gain these benefits.
The Affordable Neighborhoods for New Yorkers Tax Incentive program, also known as Section 485-x of New York State Real Property Tax Law (RPTL), is a tax exemption program established on April 20, 2024 with the goal of increasing affordable housing for New Yorkers.[1] These benefits can apply to eligible multiple dwellings or homeownership projects containing six or more dwelling units.[2] These projects must have commenced after June 15, 2022 and on or before June 15, 2034, and be completed on or before June 15, 2038.[3]
This program replaces the recently expired 421-a program and ensures that all affordable housing units will be permanently affordable, and that all restricted units will be permanently rent-stabilized.[4]
Application Requirements, Filing Fees, and Upcoming Deadlines
Application forms and procedures are still being developed by the New York City Department of Housing Preservation and Development (HPD), but future applicants must first submit a registration notice.[5] For projects with a commencement date after June 15, 2022 and before April 20, 2024, the registration notice must be filed within six months of the notice first becoming available.[6] This notice will become unavailable after December 14, 2024.[7] For projects with a commencement date on or after April 20, 2024, the notice will be available throughout the entirety of the program and must be filed no later than six months after the commencement date.[8]
Failure to submit the registration notice on time may result in a penalty not to exceed 100% of the application filing fee.[9] This can run into many thousands of dollars. HPD's filing fees are as follows: $3,000 per dwelling unit for sites containing between 6 and 10 residential rental dwelling units, $4,000 per dwelling unit for sites containing between 11 and 99 residential rental dwelling units, $4,000 per dwelling unit for a homeownership project, and $5,000 per dwelling unit for sites containing 100 or more residential rental dwelling units. Lesser filing fees will be considered for projects being built with the substantial assistance of grants, loans, or subsidies provided by a federal, state, or local government agency or instrumentality pursuant to a program for the development of affordable housing.[10]
Eligible Projects and Benefits
There are four types of eligible projects under § 485-x: Large Rental Projects and Very Large Rental Projects (Option A), Modest Rental Projects (Option B), Small Rental Projects (Option C), and Homeowner Projects (Option D).[11]
A. Option A – Large and Very Large Rental Projects
For Large Rental Projects (100 or more residential dwelling units) to be eligible, 25% of the units must be affordable housing units for tenants making an average of 80% Area Median Income (AMI).[12] If these requirements are met, the project will receive a 35-year tax exemption and a maximum of three years of construction period tax exemption.[13]
Very Large Rental Projects (150 or more residential dwelling units located in Zones A and B) must have 25% of the units as affordable housing units at an average of 60% of AMI.[14] If these requirements are met, the project will receive a 40-year tax exemption, as well as up to five years of construction period tax exemption in Zone A and up to three years of construction period tax exemption in Zone B.[15] An explanation of Zones A and B is set forth infra.
- Zone A includes any current or future tax lot located entirely south of 96th Street in Manhattan or in Brooklyn 0101, Brooklyn 0102, Brooklyn 0103, Brooklyn 0104, or Queens 0201.[16]
- Zone B includes any current or future tax lot located entirely in Brooklyn 0201, Brooklyn 0202, Brooklyn 0203, Brooklyn 0204, Brooklyn 0601, Brooklyn 0602, Brooklyn 0801, Queens 0105, or Queens 0102.[17]
B. Option B – Modest Rental Projects
For Modest Rental Projects (at least six and no more than 99 residential dwelling units), 20% of the units must be affordable housing units at an average of 80% AMI.[18] These projects will receive a 35-year tax exemption and a maximum of three years of construction period tax exemption if the requirements are met.[19]
C. Option C – Small Rental Projects
For Small Rental Projects (at least six and no more than 10 residential dwelling units), at least half of the units must be rent-stabilized.[20] Additionally, the project can neither be in Manhattan nor located on a zoning lot that allows the residential floor area to exceed 12,500 square feet.[21] If these requirements are met, the project will receive a 10-year tax exemption and up to three years of construction period tax exemption.[22]
D. Option D – Homeownership Projects
For Homeownership Projects (at least six units), the project must have an assessed valuation per square foot not to exceed $89 per square foot upon the first assessment after the completion date.[23] Furthermore, the project cannot be located in Manhattan, and the owner of each unit in the project must agree in writing to maintain the unit as their primary place of residence for at least the first five years of ownership.[24] If these requirements are met, the project will receive a 20-year tax exemption and up to three years of construction period tax exemption.[25]
Wage Requirements for Eligible Projects
The New York City comptroller enforces 485-x construction work wage requirements for qualifying projects.[26] These requirements can be exempted through a project labor agreement or other collective bargaining agreement.[27]
Construction work on eligible sites with at least 100 units must provide all building service employees employed by the covered building service employer with a minimum wage of $40/hour, which will increase by 2.5% per year.[28]
Construction work on eligible sites of at least 150 units located in Zone A must offer a minimum wage of either $72.45/hour (with a 2.5% annual increase) or 65% of the greatest prevailing rate of wages and supplements within a classification, whichever is less.[29] Furthermore, such eligible sites located in Zone B must provide a minimum wage of either $63/hour (with a 2.5% annual increase) or 60% of the greatest prevailing rate of wages and supplements within a classification, whichever is less.[30]
Eligible sites in this section are subject to Labor Law Sections 220 and 220-b requirements.[31] All building service employees must receive the applicable minimum wage for the entirety of the benefit period, even if benefits are terminated, unless the eligible multiple dwelling consists of fewer than 30 dwelling units or all of the units are affordable housing units, with at least half of such units occupied by tenants making a maximum of 90% of AMI.[32]
Other Significant Requirements to Consider
Owners must give HPD notice of a 485-x construction project at least three months before the commencement of the project, otherwise such project risks losing the tax benefits and may be subject to penalties and fines not to exceed $5000 per day.[33]
Eligible sites must make all reasonable efforts to contract with minority- and women-owned businesses (MWBEs), totaling at least 25% of all applicable project costs.[34]
Conclusion
Developers with existing construction projects that commenced between June 15, 2022 and April 20, 2024 should aim to quickly determine whether their projects might qualify for the 485-x incentive, as it could result in a significant tax and cost savings during construction and for decades thereafter, providing up to 40 years of tax exemptions for certain projects (as outlined supra), depending on the size and location of the project. The registration notice for this tranche of projects will be available only until December 14, 2024.
Developers currently planning to commence construction soon should consider analyzing the applicability of the 485-x incentive to their planned project now, as those developers must file a registration notice for their projects within six months of the construction commencement date.
[1] 485-x: Affordable Neighborhoods for New Yorkers, NYC Housing Preservation & Development, https://www.nyc.gov/site/hpd/services-and-information/tax-incentives-485-x.page (last visited July 24, 2024).
[2] Id.
[3] Id.
[4] Id.; New York State Legislature Passes FY 2025 Budget, Including Significant Action on Housing Katten, https://katten.com/new-york-state-legislature-passes-fy-2025-budget-including-significant-action-on-housing (last visited July 24, 2024).
[5] NYC Housing Preservation & Development, supra note 1.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] RPTL § 485-x(18).
[11] NYC Housing Preservation & Development, supra note 1.
[12] The AMI for all cities across the country is defined each year by the U.S. Department of Housing and Urban Development (HUD). The 2023 AMI for the New York City region is $127,100 for a three-person family (100% AMI). The New York City AMI calculation chart can be found here: https://www.nyc.gov/site/hpd/services-and-information/area-median-income.page.
[13] NYC Housing Preservation & Development, supra note 1.
[14] Id.
[15] Id.
[16] Id.
[17] Id.
[18] Id.
[19] Id.
[20] Id.
[21] Id.
[22] Id.
[23] Id.
[24] Id.
[25] Id.
[26] Id.
[27] Collective bargaining agreements, generally, are employment terms that are agreed upon between a union and their employers to ensure employees are treated fairly. Project labor agreements are negotiated between construction unions and contractors to provide terms and conditions of employment on a construction project. Collective Bargaining, AFL-CIO, https://aflcio.org/what-unions-do/empower-workers/collective-bargaining#:~:text=Collective%20bargaining%20is%20the%20process,work%20and%20family%2C%20and%20more (last visited July 24, 2024); Project Labor Agreement Resource Guide, U.S. Department of Labor, https://www.dol.gov/general/good-jobs/project-labor-agreement-resource-guide (last visited July 24, 2024).
[28] NYC Housing Preservation & Development, supra note 1.
[29] Id.
[30] Id.
[31] Id.
[32] Id.
[33] RPTL § 485-x(3)(d).
[34] RPTL § 485-x(4).
