NY Legislature Advances Budget Without 421a Deadline Extension

In February, Gov. Kathy Hochul proposed to extend for four years the June 2026 deadline for completing projects that are eligible for incentives under the now-expired 421a tax breaks in NYC.

Scores of developers raced last June to pour foundations before the June 15 deadline to qualify for the tax breaks, which expired at the end of June 2022. Now, multifamily developers are pushing for an urgent extension of the 2026 deadline. If they fail to meet the deadline, their 421a projects are no longer eligible for the tax breaks.

NYC developers are warning that most of these projects will be canceled or postponed if the June 2026 deadline remains in place because in the current environment they’re not feasible—and, if they miss the deadline, whatever financing they were anticipating will evaporate when lenders pencil out the tax breaks.

According to a survey conducted by the Real Estate Board of New York (REBNY), more than 32,000 housing units may not get built if the June 2026 deadline stays in place.

Hochul’s proposal to extend the deadline was part of a budget including an ambitious housing agenda that aimed to, among other things, make a key revision in the laws governing NYC zoning to enable more office conversions to apartments, a central element of Mayor Eric Adams’ “Moonshot” plan to build 500K new homes by the end of the decade (Hochul’s goal is 800K in 10 years).

Moving the 421a deadline to June 2030 no doubt was music to the ears of apartment developers in NYC, but the budget bills introduced by the majority leaders in New York’s State Senate and Assembly this week sent a strong signal that legislative leaders are not humming the same tune.

The extension of the 421a construction deadline is nowhere to be found in the budget package now on the floor in both chambers. The rest of Hochul’s plans have been narrowed considerably in the package—and she has until April 1, when the state budget is due, to negotiate with the legislature.

Lawmakers in Albany rejected a proposal from Hochul last year to replace the 421a tax break. At a hearing earlier this month, several legislators spoke out against an extension of the construction deadline, noting that the tight deadline was intended to avoid what happened the last time 421a expired—projects were shelved for more than a decade but the incentives, which were later revived, could still be redeemed.

The budget resolution put forward in the NY Senate this week indicates that housing projects will be “addressed outside the budget process”—most likely in the form of economic development incentives for a handful of large projects.

The budget resolutions put forward in both houses also reject Hochul’s proposal to use Builder’s Remedy to overrule local zoning authorities on housing projects—a tool now being used by California—and her proposal to increase the allowable housing density in proximity to train stations, which Hochul put forward as a Transit-Oriented Development Act.

The two chambers appear to be split on proposals that are central to NYC’s Moonshot plan—giving office buildings built before 1990 access to the most flexible zoning to enable conversions to apartments, which will require a change to New York State’s Multiple Dwelling Law, and creating tax incentives for conversion projects in NYC—both of which Hochul included in her budget proposal.

After the budget bills were unveiled in Albany, REBNY’s president fired the opening salvo in what is shaping up to be a pivotal battle for NYC.

“The state legislature continues to ignore the city’s rapidly growing rental housing supply crisis,” Jim Whelan, REBNY president, said in a statement.

“The legislature’s big ideas are to spend hundreds of millions of dollars on ‘planning’ for housing outside New York City and a new program for limited-equity co-ops rather than support the governor’s proposals that would actually directly spur meaningful rental housing production,” Whelan said.