NY Legislature Agrees to Replace J-51 Tax Abatement

Just when it looked like the NY legislature would take a pass on Gov. Kathy Hochul’s entire housing agenda this year, a last-minute agreement was reach to revive a replacement for the J-51 tax break, which expired last July.

The J-51 program, which was an incentive for apartment renovations that provided tax abatements of up to 34 years, will be replaced with an incentive known as the Affordable Housing Rehabilitation Program, TheRealDeal reported.

The new program will run for up to 20 years and will require eligible buildings to be 50% affordable, receive “substantial” government assistance or be part of the city’s Mitchell-Lama projects.

Up to 70% of renovation work would apply to the break, which will require landlords to keep the units rent-stabilized for a minimum of 15 years. Assuming the New York City Council enacts the program, the tax break will apply to renovations completed between June 29, 2022 and June 30, 2026, TRD reported.

In last-minute maneuvering to seal a deal on the state budget at the end of April, Hochul was forced to abandon her plans to build more than 800K new homes in the Empire State.

Faced with fierce opposition from NYC suburbs and Long Island, Hochul dropped all of her major housing initiatives, including a plan to give the state the power to override local zoning officials and force higher-density housing development along transit lines.

The biggest loser when Hochul took her entire housing package off the table was New York City, which had tied its Moonshot program—which aims to build 500K in new housing units—to a series of measures that Hochul had promised to enact, including incentivizing office-to-resi conversions, raising the city’s cap on residential floor area ratios and legalizing basement apartments in NYC.

Hochul also failed to include in the budget deal a four-year extension on the 2026 deadline for completing 421a tax abatement projects, without which developers have warned projects involving more than 30K housing units may end up being canceled.

“We’ll continue to see anemic rental housing production,” James Whelan, the president of the Real Estate Board of New York (REBNY), told the New York Times. “There’s no reason to think that’s going to turn around.”

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. If they fail to meet the 2026 construction deadline, their 421a projects are no longer eligible for the tax breaks.

NYC developers said most of these projects will be canceled or postponed 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 REBNY, more than 32,000 housing units may not get built if the June 2026 deadline stays in place.