New York Gov. Kathy Hochul and state lawmakers spent two bruising years wrestling over how to tackle the state’s ongoing housing crisis, finally landing a compromise last week that they say will provide a crucial boost in supply while providing some renters with new eviction protections.
Now comes the hard part of figuring out if their plan will actually work.
Housing experts agreed the package of housing reforms will, at the very least, help spur some development, particularly in New York City, where the vacancy rate for apartments fell to a 50-year low of 1.4% in 2023.
But will it be enough to have an actual, tangible effect on supply and demand? That won’t be known for years, if not decades, and will be influenced in part by factors largely outside of Albany policymakers’ control, such as interest rates.
“I don’t think we should celebrate because we still have a housing crisis, and we’re going to have a housing crisis, and we’re going to have a lot of people who can’t afford housing,” said Matthew Murphy, the executive director of NYU’s Furman Center for Real Estate and Public Policy. “I think what we need to do is say: This is now our new world. These are the clear goals we need to set and work to achieve.”
For Hochul and Mayor Eric Adams, the long-awaited housing deal in Albany is cause for celebration.
Both have tried to push housing development during their respective terms in office and have spoken of the need to create hundreds of thousands of new units over the coming years to increase supply and drive down ever-increasing rent costs.
They stood next to each other Tuesday at a Manhattan rally with labor unions, taking turns touting the tax breaks and rule changes that they say will put New York on a path to finally addressing the ongoing need for housing.
Hochul called the housing package “historic” and said it will “transform our state, put tenants and working families first, and allow New York to put our vision of our better future into a reality.”
“This is such a victory for us,” Adams said, adding that the new measures will have “rippling impacts on the quality of life of New Yorkers for generations to come.”
The housing deal’s core feature is the revival of a property tax break for residential developers, previously known as 421-a. Its proponents paint it as a way to incentivize developments that include much-needed, below-market-rate units.
The latest iteration, now known as 485-x, will generally require participating developers to make a quarter of the apartments in their projects affordable to individuals with average earnings of no more than $80,000 a year or families of three earning around $112,000 annually. It’s a significant drop from the last tax break, which allowed developers to create “affordable” units priced at higher income tranches many New Yorkers could never touch.
In exchange, developers get a hefty break on their property taxes over the course of up to 40 years, depending on how the deal is structured.
Brett Gottlieb, an attorney with Herrick Feinstein LLP who specializes in the affordable housing tax break program, said the revival of the tax break probably wouldn’t be enough to meet that goal on its own. But when packaged with the other measures in the housing plan, it’s possible.
“I think that all these tools together will work to get us closer to that goal or or possibly even exceed it,” he said.
He was quick to add a caveat, though: Interest rates have increased in recent years, which is a major complicating factor in the near term, at least.
“I think that the big headwind for new construction is going to remain interest rates,” he said. “Because this new [tax break] program does carry with it a decrease in expected income and increase in expected cost, particularly for the larger projects, I think … developers might possibly wait out the economic environment and try to procure lower interest rates, if and when the time comes.”
The tax break has been around in some fashion for a half-century, save for the last two years when lawmakers allowed it to expire. That decadeslong period coincides with the current housing shortage, which has built up over time.
The housing package also lifts a long-standing rule known as the floor-area ratio cap, which limited the density of New York City housing developments based on the size of their lot. It also incentivizes the conversion of office space into residential units, and includes a limited pilot program to legalize basement apartments in certain parts of the city and bring them up to code.
Adams’ administration set out to create an average of 50,000 new housing units in the city each year for a decade in hopes of meeting his “moonshot” goal of 500,000 new units.
The National Low Income Housing Coalition estimates that the Empire State needs nearly 667,000 new units of housing just to meet the demand among New Yorkers earning less than $33,000.
Laura Wolf-Powers, an urban policy and planning professor at Hunter College, said nothing in the new budget addresses that specific shortage.
“I don’t see anything in the package that will build housing at the low-end market,” she said.
The new tax break should revive major projects that stalled following the tax break’s expiration, including the nearly 3,000-unit Innovation QNS development in Long Island City and the 1,300-unit Hallets North plan in Astoria, which were both approved by the City Council in 2022.
The final deal is also facing criticism for focusing mainly on new housing within the five boroughs — a year after suburban lawmakers, and some elected officials in lower-density parts of New York City, killed Hochul’s plan to set development targets for every town in the state.
Paul Williams, the executive director of the Center for Public Enterprise, said other municipalities must also be held accountable for the statewide housing shortage. He pointed to restrictive zoning rules throughout Long Island that make it nearly impossible to build much new housing.
“New York City alone is not going to solve the state and metropolitan region’s affordability crisis,” Williams said.
Murphy, the Furman Center’s executive director, said the new measures finally provide a level of certainty. For at least the next decade, state policymakers have finally set a foundation for housing policy moving forward — which can help clear the way for changes at the municipal level.
That includes Adams’ “City of Yes” plan, a sweeping package of zoning changes meant to drive housing creation throughout the five boroughs, including moderate development in lower-density areas like northeastern Queens and much of Staten Island.
“We still need to be really creative and think of ways to make it easier for people exiting homeless shelters to get into stable housing, and think of ways to use our affordable housing finance to get low-income housing built, especially in neighborhoods where it’s more difficult to achieve that,” he said.