United States: Governor Hochul releases revisions to 421-a program
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Governor Kathy Hochul released a proposed revision to the 421-a “Affordable New York” program this week, as part of her executive budget proposal for fiscal year 2023. The new program would be known as the tax incentive. “Affordable Neighborhoods for New Yorkers” (ANNY) and would be contained in Section 485-w of the Property Tax Act. The proposal follows a framework similar to the existing 421-a program, but with more in-depth affordability required and with new affordability options for small rental projects and home ownership projects.
The legislation would simplify the affordability options currently allowed, reducing the number of options from six to three:
- A new option A would apply to any rental project of 30 units or more. This option would require that 25% of the units in a building be affordable, with:
- 10% of affordable units for households at or below 40% of the area median income (AMI)
- 10% of affordable units for households at or below 60% of the AMI
- 5% of affordable units for households at or below 80% AMI
This option is similar to the current Option A under 421-a, except the top income bracket is lowered from 130% of the AMI to 80% of the AMI.
- For rental projects of less than 30 units, a new affordability option B would apply, requiring a lower level of affordability. Under Option B, 20% of units must be affordable to households at or below 90% of the AMI.
- For home ownership projects, a new Option C would require 100% of units to be affordable to households at or below 130% of the AMI.
Option A generally aligns with Option 1 of Mandatory Inclusive Housing (MIH) under the zoning resolution, which requires affordable housing to be provided in an amount equal to 25% of the floor area of the building. a zoning lot, although MIH Option 1 allows an income bracket up to 130% of the AMI, which is not allowed under ANNY Option A. The other two ANNY options do not have a similar option under the MIH.
Similar to the existing law, the tax benefits under the new legislation would extend for 25 years after construction, and a partial tax exemption, equal to the percentage of units in the building that are affordable, would extend to 10 more years. . The proposal would eliminate the full 35-year tax exemption in current law for large projects in “areas of improved affordability”. Property projects under Option C would enjoy a 40-year tax holiday.
A notable new feature of the proposal is that for rental projects, the affordability requirements apply in perpetuity, even though the tax benefits will have ended after 35 years. For home ownership projects, the affordability restrictions only survive the 40-year period of the tax exemption. These restrictions apply to the resale of the home, requiring that the home be sold to an income-qualified buyer during the 40-year period and that the owner use the home as their principal residence for at least five years.
The new program retains many features of the existing law, such as a construction wage requirement for projects of 300 or more units in certain areas of Manhattan, Brooklyn and Queens, a wage requirement in effect for utility workers construction and rent stabilization requirements.
It remains to be seen how the proposal will emerge from the legislative process. The real estate community is eager to have a plan that strikes the right balance between creating incentives for affordable housing and the economic viability of projects. Kramer Levin will follow the legislation and be available to advise our customers as it evolves.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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