‘Placeholder’ Politics: Gov. Hochul’s 421-a Replacement Leaves Room for Negotiation

Gov. Kathy Hochul’s proposed legislative budget for the new year includes another attempt at replacing the expired 421-a developer tax break. But she’s left lawmakers, construction unions and developers to hash out exactly what the “Affordable Neighborhoods for New Yorkers” incentive will look like. 

When Gov. Kathy Hochul unveiled her budget proposal for the coming year on Jan. 16, the inclusion of a new tax incentive for housing didn’t come as a surprise.

Yet for some longtime observers of the state’s annual budget dance, the lack of specifics in her proposal, called 485-x or the Affordable Neighborhoods for New Yorkers tax incentive (ANNY), jumped out.

“The devil is in the details. And I think there are few details when it comes to the 485-x proposal,” said Assemblymember Linda Rosenthal, chair of her body’s housing committee.

Those details are largely being left to state lawmakers, construction unions and developers to hash out. Hochul herself has called ANNY a “placeholder.”

“We hope that there can be some very robust and productive negotiations on what that looks like,” Hochul told reporters following her budget address. 

Like the now-expired 421-a initiative, ANNY outlines a 35-year tax break for developers involved in rental projects featuring affordable units in New York City, and 40 years for homeownership projects. However, it lacks specific details regarding the required levels of affordability.

Instead, these determinations would be entrusted to the New York City Department of Housing Preservation and Development (HPD).

This marks a significant departure from Hochul’s previous attempt to replace the tax break in 2022, when she proposed the more comprehensive 485-w program  featuring slightly deeper affordability requirements compared to 421-a, with multiple affordability options for developers. 

Lawmakers were unwilling to accept the proposal, however, allowing 421-a to expire in 2022.

Hochul’s 485-x also puts the onus on real estate interests and labor unions to reach a memorandum of understanding, establishing wage standards for qualifying projects.  

Samuel Stein, a housing policy analyst at the Community Service Society (or CSS, a City Limits’ funder) and longtime critic of 421-a, pointed out that tenants would not be privy to these negotiations in the proposal as-written. 

“The people who represent the people who would live in these buildings are nowhere to be found in the structure of their proposal,” he said. 

A CSS report last year found that 421-a cost the city an estimated $22.2 billion in property tax revenue over three decades, which the nonprofit categorized as “subsidizing the luxury housing market.” 

Another analysis from the city comptroller’s office found that the majority of income-restricted units produced under 421-a between 2017 to 2020 were for households earning 130 percent of the Area Median Income, or $102,400 for a three-person family at the time—what the report described as “unaffordable to the vast majority of New Yorkers.” 

At a mayoral press conference Thursday celebrating housing construction in 2023, HPD Commissioner Adolfo Carrión said a tax incentive is needed to produce affordable housing. 

Of the 14,227 new construction units started in New York City last year, close to 7,300, or about 51 percent, were part of projects that received the 421-a tax break, according to HPD. 

“It’s a tax incentive that invites investment into our city so we can support affordable housing,” he said. “You may have some differences with us on how to execute that, we may all have some points of view that we need to tease out, but … let’s make a deal.” 

Reached for further comment on HPD’s role in Hochul’s proposal, Press Secretary William Fowler referred to comments at the press conference. 

Meanwhile, some political watchers expressed doubt over the extent of discretion  HPD will ultimately have in the plan.

“I don’t think that anyone has any illusions that those important details are going to be punted by the Legislature to an administrative agency,” said Howard Slatkin, executive director at the Citizens Housing & Planning Council who formerly spent over two decades in the NYC Department of City Planning.

“That implies a world of freewheeling legislative delegation that I don’t think we live in,”  Slatkin added. “In some world, would that make sense? Maybe, but I don’t think that that’s really plausible.”

In Slatkin’s view, a new tax incentive is crucial, and without it New York City won’t be able to use its existing Mandatory Inclusionary Housing (MIH) program effectively. 

“Without that, there’s no way to use rezonings to boost housing production,” he said. “The city’s ability to rezone to encourage growth depends on having this program, so it’s really important.”

Other players expected to help shape the proposal praised the governor’s approach, but voiced concern and doubt that other stakeholders will negotiate in good faith.  

“To her credit, the governor is trying to meet in a collaborative manner and we applaud that,” said Kevin Elkins, political director for the NYC District Council of Carpenters. 

But he was critical of the Real Estate Board of New York (REBNY), the city’s largest industry trade group. 

“Everything we have seen up to and including the present does not inspire confidence that REBNY is interested in striking an agreement that will protect workers and create good housing,” he said. 

The two parties have previously been at odds over wage and other requirements for projects that receive the tax breaks. 

“They’re not in a dealmaking mode,” Elkins added. “REBNY has said they will oppose anything with tenant protections, so why make a deal with someone who has told you they will punch you in the face tomorrow?”

REBNY has stood in opposition to good cause legislation, which would grant additional rights to residents in unregulated housing, pressing instead for the expansion of rental voucher programs to aid tenants. In a statement to City Limits, the group said it’s “committed to working with a broad range of stakeholders.”   

“That includes continuing to work with the Building and Construction Trades Council and its constituent unions to pay good construction wages and benefits as part of any new program that spurs the creation of multi-family, mixed income rental housing,” REBNY’s Senior Vice President of Policy Zachary Steinberg said. 

This early in the state legislative session, complex negotiations lie ahead. 

Senator Brian Kavanagh, chair of the Senate housing committee, agreed that a tax break is necessary to spur development.  But he alluded to additional priorities he hopes to include in the conversation, such as tenant protections like good cause. 

“We’re gonna have to figure out the details of that. But I think that continues to be a priority for a lot of us in the legislature,” he said, calling the governor’s 421-a proposal “a good start for the discussion.”

Rosenthal, too, indicated a more receptive stance towards tax incentives when coupled with renter protections.

“A lot of people interested in the subject have seen that you can’t do one program, and then on the other hand, not address some of the inequities that exist when it comes to tenant protections,” she said. “I think every option should be on the table at this point.”

Rosenthal also said that she is open to a deal with discretion for HPD, but was quick to caution that no singular party should  have too much authority. 

“It can’t just be one agency deciding the future of a 485-x program,” she said. “It has to be a much broader discussion, and a lot more points of view have to be worked in.” 

Speaking at the REBNY Gala Thursday evening in Manhattan, Gov. Hochul touched on her proposal further, insisting that the solution would have to come through amicable negotiations.

“I am committed with REBNY, our friends in labor, the advocates,” she said. “I believe there is an answer that can be found… in the next couple of months.”

Stein, of CSS, said Hochul’s allusion to advocates was vague.

“I think that is a way of signaling at some popular force without naming the group that isn’t in the room, which is tenants,” he said. 

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