Hochul Makes Revival of 421a Tax Break a 2024 Priority

Gov. Kathy Hochul, who withdrew an ambitious plan to expand housing in New York last year after upstate legislators mounted stiff opposition, used her annual State of the State address this week to make restoring the 421a tax break for affordable housing a top priority of her 2024 agenda.

Hochul said any restoration of the tax abatement, which expired in June 2022, will need to include new requirements for below-market housing and wage standards for building service and construction workers. She suggested that the legislature enable NYC to offer its own abatement for rental housing construction.

Hochul also renewed her support for a four-year extension of the deadline that requires 421a projects to be completed by June 2026 in order to be eligible for the tax breaks, which offered a decades-long abatement on property taxes in exchange for setting aside a percentage of housing for lower- or middle-income tenants.

Developers in NYC rushed to put in building foundations for numerous projects in June 2022 before 421a expired. The slowdown in new construction last year as high interest rates made it hard to secure construction financing put many of these projects in jeopardy of missing the 2026 deadline.

More than 32,000 new housing units may not get built if the 2026 deadline is not extended, according to the Real Estate Board of New York (REBNY).

In her speech, Hochul also pledged to deliver housing law changes that NYC officials have said are essential to the city’s “Moonshot” plan to build more than 500K new housing units in the next 10 years, including the conversion of unused office space to residential use.

The governor said she would seek to lift a floor-area ratio cap that would allow developers to build more densely. Hochul also said she would pursue legislation to provide tax credits to commercial property owners for building conversions to housing as well as a law that would legalize basement apartments.

“The city of New York, which is a local government, wants to build 500,000 more homes over a decade. I agree. Let them build,” Hochul said.

Hochul warned that “housing construction will slow to a crawl” without new tax incentives. She did not indicate in her speech whether she will back a “good cause” eviction bill as a tenant protection measure.

Last year, Hochul was forced to abandon her plans to build more than 800K new homes in the Empire State.

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

In July, the governor was able to introduce a pilot 421a tax break extension in Brooklyn’s Gowanus neighborhood that generated 19 applications that will create 5.500 units, including 1,400 affordable apartment, according to the governor’s office.

Hochul announced this month that she has signed an executive order unlocking $650M in state discretionary funding that will be awarded to upstate municipalities that streamline permitting for housing development.