Hochul Tests 421a Workaround on Gowanus Projects

Gov. Kathy Hochul, who failed to persuade the NY legislature to extend a 2026 deadline for completing multifamily projects that will be eligible for 421a tax abatements that expired in June 2022—her entire housing agenda did not make it into this year’s budget deal—announced a workaround that will provide an equivalent of the tax breaks.

The new program initially will be limited to projects in the Gowanus neighborhood of Brooklyn, but Hochul has promised to expand it if developers are receptive to it.

Under the governor’s plan, the state will temporarily take over multifamily development sites and rent them back to developers through long-term ground leases. Property owners will then make payments in lieu of taxes (known as PILOTs) at a discount to what they would pay in property taxes. The developers regain the property at the end of the benefit period.

The projects in Gowanus that will be eligible to participate in the new program must have put their foundations in the ground before the 421a tax breaks expired in June of last year but are not on track to meet the June 2026 delivery deadline.

An 80-block section of Gowanus was rezoned by NYC in 2021, aiming to spur the development of 8,200 apartment units. Earlier this year, after Hochul failed to get the NY legislature’s support to revive the 421a tax abatements—or to extend the deadline for project delivery to 2030—the governor said the failure to act had brought “the energy and momentum” of the Gowanus redevelopment “to a screeching halt.”

Without the extension of the 2026 delivery deadline, developers have warned that 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. 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.

Hochul also announced this week that she plans to deploy $650M in discretionary funds under her control for “pro-housing communities,” which she defined as municipalities that show “concrete” commitments to add housing. The state will release criteria for the funding.

Gov. Hochul said she remains committed to the New York Housing Compact plan she proposed, which aims to build 800,000 new housing units in the Empire State.