WIth the enactment of FY 2025 Budget, New York Legislators have taken one large step in the easing of the housing burden in New York State. Although there are still a long ways to go, this will go down as one of the biggest Fiscal Year budget passings in history. In the quest to address New York City's pressing need for affordable housing amidst skyrocketing real estate prices, the 421-a and 485-x tax abatement programs stand as critical instruments.

Detailed Overview of 421-a Tax Abatement ("Affordable NY") - PARTIALLY EXTENDED

The 421-a program, designed to stimulate affordable housing development, offers several options depending on the project's scale and location:

7 Options (4 at small-medium scale, 3 at large scale) - Partially extended

  • Options A-D (Small-Medium Scale)
    • Option A (extended to 2031): Requires 25% of residential units to be affordable—10% at 40% AMI, 10% at 60% AMI, and 5% at 130% AMI. This option is widely available but excludes other government subsidies except for tax-exempt bond proceeds and 4% tax credits.
    • Option B (extended to 2031): Demands a higher threshold with 30% of units affordable—10% up to 70% AMI and 20% up to 130% AMI, providing a broader spectrum of affordable housing.
    • Option C (Not Extended - Expiration still 2026): Offers 30% of units at 130% AMI with no extension post-2031 and restrictions on location, specifically excluding areas south of 96th Street in Manhattan, targeting middle-income residents.
    • Option D (Homeownership - Not Extended - Expiration 6/15/26   ): Focuses on affordable homeownership with an assessed value cap of $65,000 per unit. It mandates owners to maintain the property as their primary residence for at least five years post-closing, promoting long-term residency and community stability.
  • Option E-G (Large Scale)
    • Option E (Extended to 2031): At least 25% of the units must be affordable, with at least 10% of those units affordable at up to 40% of the AMI, 10% at 60%, 5% at 120%. Available in all areas.
    • Option F (Extended to 2031): At least 30% of units affordable, at least 10% of units at 70% of AMI, 20% at 130% AMI.
    • Option G (Not Extended - Expiration 6/15/26): At least 30% of units at 130% of AMI. Only available within BK CB 1&2, QNS CB 1&2

421-a Characteristics

  • Wage Requirements
    • Average Hourly Wage of $45 in BK/QNS, $60 in Manhattan. Increases by 3% every year.
  • Affordability Duration
    • Abatement lasts for 35 years at 100%. To note - the affordability must last for 40 years (an additional 5 years after abatement termination). Thereafter the affordable units must revert back to Free-Market.
  • Replacement Ratio
    • For the number of units demolished 3 years prior to start of construction, at least one affordable unit shall be built in it’s place for each unit.
  • Rent Stabilization & affordable units lease-up
    • All free-market units that are at or above the DHCR deregulation threshold which is set at $3,040.09 (2024) shall not be subjected to rent stabilization.
    • Must be leased through HPD’s marketing unit - “Housing Connect”
  • Affordability Selection
    • Once HPD has approved your affordability selection, you cannot change the affordability or unit mix.

485-X – Affordable Neighborhoods for New Yorkers (“ANNY”) - ENACTED

485-X Options - Source - Metropolitan Realty Exemptions

485-X - Affordable Neighborhoods for New Yorkers, otherwise known as “ANNY” offers developers an attractive new alternative to the otherwise unnavailable 421-a. Below is a breakdown of the specifics of the program.

4 Options

  • Option A – Large & Very Large Projects  
    • 150+ Units in “Zone A” – S of 96, Greenpoint, S/E/N Williamsburg, LIC
      • 25% @ 60% AMI – Weighted
      • 40 Years
      • Lesser of $72.45/hr, increasing 2.5%/year, or 65% of prevailing wages
      • 100% exemption above base AV – no phase in
    • 150+ Units in “Zone B” – Prime Brooklyn (BK Heights, Dobro, Fort Greene, Clinton Hill, Carroll Gardens, Park Slope, Prospect Heights) Queensbridge.
      • Same as “Option A”
      • Except for Construction wages at $63/hr, 2.5%/year, or 60% of prevailing wages.
    • 100+ Units
      • 25% @ weighted average of 80% AMI
      • 35 year duration • $40/hr, increasing 2.5%/yr.
  • Option B – Modest Rental Projects – 6-99 Units
    • 20% Weighted at 80% AMI
    • 35 year duration
      • 1-25 = 100% exemption  
      • 26-35 = Exemption equal to % of affordable (i.e. 20% = 20% exemption) ABOVE BASE AV.
      • No construction wage requirements
  • Option C - Small Rental Projects - 6-10 Units
    • Available everywhere outside of Manhattan
    • 50% of units to be rent stabilized
    • 10 year abatement - no phase in
      • Additional 3 years of construction
    • No wage requirements
  • Option D (Homeownership) - Available in all project sizes.
    • Excludes Manhattan
    • Average AV cannot exceed $89/Sq. Ft.
    • 20 year duration
      • Plus 3 year construction timeline
      • 1-14 - 100% exemption above base AV
      • 15-20 - 25% exemption above base AV
      • Wage requirements are based on tehe sizes of option A-D.

485-x Characteristics

  • Eligibility – Different from 421A
    • Must have started AFTER June 15, 2022. 421A allowed for later opt-ins.
  • • Exemption Value – Similar to 421A
    • Increase above the base Assessed Value (AV) of a tax year prior to commencement of construction.
  • • Preliminary Filing w/ HPD – Similar to 421A
    • File w/ HPD within 6 months after start of project commencement date.
  • • Affordable Unit Mix – Similar to 421A
    • Must pass proportionality test or consist of at least 50% two-bedroom or larger, with no more than 25% studios.
  • • Market Rate Units – Different from 421A
    • Market rate units are not subject to rent stabilization.
    • This is an improvement from the 421A. In 421A, any rents below $3,040.09 (2024) was subject to rent stabilization.
  • • M/WBE – Different from 421A
    • Eligible site must exhibit all reasonable efforts throughout the design and construction phases to designate at least 25% of the total applicable costs to Minority and Women-Owned Business Enterprises (MWBE).
  • • Restriction Period – Different from 421A
    • Affordable units remain affordable in perpetuity, even after expiration of tax abatement.
    • 421A buildings reverted to 100% Free Market upon expiration of the tax abatement.
  • • Condominium Requirements – Different from 421A
    • Condominiums outside of Manhattan are allowed to have a post-completion value at or below $89 per square foot. Home buyers commit to occupying units for 5 years after purchased.
    • Allows eligibility for larger units, since the old 421A maxed out at $65K post completion AV, as opposed to on a price per foot basis.
  • Construction Wage Requirements – Different from 421A
    • Construction wages are mandatory for projects with 100+ units.
      • 421A required minimum hourly wages for 300+ units.
  • Filing Fees – Different from 421A ($3000 across the board)
    • $3000/unit – sites 5-10 units
    • $4000/unit – sites 11-99 units
    • $4000/unit – homeownership projects, any size
    • $5000/unit – 100+ units
  • Replacement Ratio – Similar to 421A
    • Owner is required to replace demolished units with an equivalent number of affordable units to maintain preexisting housing capacity.
  • Commercial Space – Similar to 421A
    • Program allows commercial, community facility, and accessory use space up to 12% of the projects aggregate floor area to be exempt along with the residential portion.
New York City - Area Median Income (AMI) - https://www.nyc.gov/site/hpd/services-and-information/area-median-income.page

Verdict

  • As the size of the site goes up, the value on a $/BSF goes down. – 485x sites.
  • Larger 421a sites are worth a little more, due to the lack of prevailing wages on larger projects. – 421a wins.
  • 485x does not put rent stabilization on the free-market portion of the building – 485x wins.
  • Homeownership capped at $89 AV, instead of $65,000 – 485x wins.
  • Larger Projects – 421a wins.
  • Smaller Projects (Below 100 units) – 485x wins.

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