It has long been an accepted reality that very little real estate development gets done in New York State without the help of a myriad of tax incentive packages handed out by state and local governments—and the entities that they create. Accordingly, when the New York State legislature allowed its long-standing Real Property Tax Law 421a tax incentive program to expire in June 2022, it effectively put multi-family residential development on ice while cranking up the heat on New York’s long-standing housing crisis.
As the acknowledged epicenter of this housing crisis, New York City saw its residential vacancy rate drop to 1.4% in February 2024 – the lowest it has been since 1968. New York City’s Vacancy Rate Reaches Historic Low of 1.4 Percent, Demanding Urgent Action | City of New York (nyc.gov) Now, after two years of uncertainty and plenty of backroom drama, the legislature is back with a replacement program branded the 485x. Predictably, the new program appears to have enough tweaks to appeal to both sides of the housing debate without really solving the problem of affordability or supply. Developers were delighted to see 485x include a 40-year exemption on taxes (up from 35) and a longer sunset provision (10 years) than previous iterations. The give back is that the program tightens affordability requirements in favor of tenants and requires income-restricted units to become permanently affordable. It also includes a complex system of higher wages for workers who build the projects that will clearly impact profitability. Finally, 485x includes many extra details that need to be run through any specific development template before the final cost is known.
At this point most observers expect that 485x will provide enough incentive to rejuvenate many multi-family projects that had stalled over the two-year incentive hiatus. The big question is whether it will encourage the tidal wave of development that is sorely needed to reverse the current housing situation in New York State. Stay tuned to see how this develops in New York.
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