An ongoing stalemate between New York City real estate developers and building trade unions is complicating state budget negotiations in Albany, where Gov. Kathy Hochul and state lawmakers appear increasingly likely to blow past a key deadline without having a final spending plan in place.
Hochul and legislative leaders are aiming to strike a deal on wide-ranging housing policies as part of a fiscal plan they hope could spur development that boosts the supply of available units and drives down rents. They failed to reach an agreement on housing last year.
So far this year, housing talks have again struggled to get off the ground.
At issue is a key component of Hochul’s housing plan: the revival of an expired, long-term tax break for developers who build housing projects in New York City that include affordable units. It was previously known as 421-a, a reference to the section of the law where the tax break was found.
Hochul punted a critical part of the negotiations to the Real Estate Board of New York — the industry’s biggest lobbying group — and labor unions in January, leaving it up to them to jointly devise a plan for determining the minimum amount workers must be paid on construction jobs that qualify for the tax break.
REBNY and the unions are still negotiating two months later. With one exception, they haven’t been able to reach a deal, throwing a wrench into the broader budget talks and casting significant doubt on whether the governor and lawmakers will be able to pass a spending plan ahead of the beginning of the state’s fiscal year on April 1.
Kevin Elkins, political director of the New York City District Council of Carpenters, one of the unions in the Building and Construction Trades Council of Greater New York, said he isn’t optimistic about the state of negotiations.
“REBNY has rejected every compromise on wage standards out of hand, never offers anything as a counter,” Elkins said. “They’re not serious negotiators. I think they’re still used to the world where they called the shots and they could jam something in at the last minute, but that’s not the way the world works anymore.”
Zachary Steinberg, REBNY’s senior vice president of policy, didn’t respond directly to that criticism when asked for comment. Instead, he touted the one agreement REBNY struck with a union on a wage-floor deal with the Mason Tenders’ District Council that calls for a $35 hourly wage-and-benefit minimum, climbing to $45 by 2033.
The agreement, Steinberg said in a statement, is “evidence of our commitment to ensuring that good construction wages and benefits are part of any new program that spurs the creation of mixed income rental housing.”
“We look forward to continuing these discussions,” he said.
The wage-floor negotiations are a small part of Hochul’s $229 billion budget proposal. But they’re having an outsize effect on the broader budget talks because they appear to be holding up negotiations on other housing proposals.
State Assembly Speaker Carl Heastie, a Democrat from the Bronx, has repeatedly said any housing deal needs to satisfy developers, tenants and organized labor. But he acknowledged earlier this month that the drawn-out negotiations between REBNY and the labor unions were delaying an overall budget agreement.
“One of the important steps is, I think, that REBNY and the unions have to come to a wage deal,” Heastie told reporters at the Capitol on March 13. “I think if they come to a wage deal, then I think the other elements can be discussed.”
Those “other elements” of a potential housing agreement are considerable. Along with the tax break for New York City projects, Hochul’s housing plan includes a measure that would require local governments to commit to pro-housing-development policies to become eligible for certain state grants. She also wants to make state lands — including certain state university properties and abandoned prisons — available to housing developers, all in hopes of boosting supply.
Meanwhile, lawmakers are discussing proposals that could allow owners of rent-stabilized apartments to raise rents based on renovations, after far-reaching legislation enacted in 2019 curtailed their ability to do so. The laws prohibited owners from removing apartments from rent-stabilization, jacking up rents on vacant apartments and passing hefty renovation costs onto tenants — a process that was ripe for fraud.
Left-leaning Democratic lawmakers have made clear they won’t approve a housing deal without greater protections for current tenants, including some form of “good cause” eviction protections, where landlords wouldn’t be able to evict tenants unless they have a specific reason, such as nonpayment of rent.
The real estate industry has vociferously opposed the measure. As currently drafted, it would allow tenants to challenge annual rent increases beyond 3% or 1.5 times the rate of inflation, whichever is larger.
Hochul has been hesitant to support good cause protections, drawing the ire of tenant activists who have traveled to the Capitol in large numbers in recent weeks.
Speaking with reporters last week, the governor defended her record on tenants’ rights and seemed to crack the door open, ever so slightly, to the possibility of negotiating a compromise.
“I’m going to be focused on building supply,” she said. “And I’m certainly willing to have conversations, but it is very early in the process in terms of what’ll actually happen at the end of the day when a deal is struck.”
Landlords and their trade groups have focused relentlessly on dismantling the rules limiting their ability to raise rents on stabilized units for the past five years and have appealed their case to the U.S. Supreme Court. Those efforts have been unsuccessful so far.
Tenant groups say they’re open to revising the rules around increases tied to “individual apartment improvements,” or IAI, that allow landlords to pass renovation costs onto renters.
Under current law, landlords can only raise rents at most by $89 a month based on improvements valued at $15,000 or less. A plan that was abandoned last year would have doubled the latter limit to $30,000.
Veteran activist and TenantsPAC Treasurer Michael McKee said renter groups are open to an improvement-tied increase if it comes with other tenant protections, such as strong good cause legislation. But he said they oppose removing the cap entirely.
“We can swallow a moderate increase in the IAI formula as long as there’s no point at which a landlord can reset the rent at market rate on vacancy,” McKee said.
But that’s exactly what landlord groups are pushing for. They say the individual apartment improvement increase still arbitrarily caps their ability to recover costs and is a distraction from their other demands to allow more rent hikes — most notably a proposal to raise rents on vacant apartments.
“It’s a false proposal to stop us from the momentum we’ve gotten on the vacant apartment issue,” said Community Housing Improvement Program Director Jay Martin, whose group represents owners of rent-stabilized apartments.
Under that plan, landlords could increase rents to the “fair market rate” set by the federal government, once an apartment becomes vacant for the first time in at least 10 years.
Critics have called it a nonstarter. A report released earlier this month by the Brooklyn-based Pratt Center for Community Development found the proposal would apply to about 500,000 apartments, or roughly half the city’s rent-stabilized housing stock, and could incentivize owners to try to drive out long-time tenants.
“Allowing such significant rent increases would impose massive displacement pressures on already vulnerable rent-stabilized tenants and diminish New York City’s already paltry affordable housing stock,” the center wrote in its report, likening the idea to property owners’ pre-2019 efforts to remove tenants and deregulate apartments.
Hochul and legislative leaders continue to negotiate other areas of the state budget in hopes of reaching a final agreement. But the state budget deadline is rapidly approaching, and may be even closer than it appears.
That’s because the Good Friday and Easter holidays fall within the three days before April 1, when the new fiscal year begins. Lawmakers are expected to leave the Capitol on Thursday so members can observe the holidays.
The practical consequences of missing the budget deadline — a frequent occurrence in Albany — are limited. Lawmakers can pass a short-term spending bill to ensure government functions continue and state workers get paid, effectively pushing out the deadline as needed.