Executive Summary: Affordable Housing and the Future of New York City’s Tax Incentives

New York City’s housing landscape stands at a critical juncture, facing a stark choice between preserving its vibrant diversity or succumbing to the homogenizing forces of gentrification. In this transformative moment, Governor Kathy Hochul’s proposed legislative budget for 2024 emerges as a beacon of hope, introducing a new tax incentive program called “Affordable Neighborhoods for New Yorkers” (ANNY) to replace the recently expired 421-a developer tax break. Yet, this proposal, while holding immense promise, is shrouded in uncertainty, prompting a chorus of concerns and sparking a lively debate among stakeholders.

Background: 421-a and the Need for a New Tax Incentive

For over four decades, New York City relied on the 421-a tax break as a linchpin of its affordable housing strategy. This program offered generous tax breaks to developers who constructed rental and homeownership projects that included a certain percentage of affordable units. While 421-a undoubtedly stimulated the construction of new housing, it also drew criticism for its affordability requirements, which some argued were too lax and failed to create a meaningful impact on the city’s affordable housing crisis. Furthermore, there were concerns that the program primarily benefited luxury developments rather than truly affordable housing projects.

The expiration of 421-a left a gaping hole in the city’s affordable housing financing landscape, necessitating the creation of a new tax incentive program to revitalize the development of affordable housing. Enter ANNY, Governor Hochul’s proposed successor to 421-a, promising to continue the tradition of providing tax breaks to developers who build affordable housing.

ANNY: The Proposed Tax Incentive Program

ANNY shares several similarities with its predecessor, 421-a. It offers a 35-year tax break for rental projects and a 40-year tax break for homeownership projects. However, there’s a crucial difference that sets ANNY apart: the absence of specific affordability requirements. Under ANNY, the New York City Department of Housing Preservation and Development (HPD) would be tasked with determining the affordability levels for each project, a responsibility that previously fell under state law.

This shift in authority has raised eyebrows among stakeholders, who question HPD’s capacity to set and enforce meaningful affordability requirements. They worry that leaving such critical decisions to a single agency could lead to inconsistent standards and a lack of accountability. Moreover, there are concerns that HPD might be unduly influenced by developers’ interests, resulting in affordability levels that are more symbolic than substantial.

Stakeholder Reactions and Concerns

The ANNY proposal has elicited a range of reactions from stakeholders, from cautious optimism to outright skepticism. Assemblymember Linda Rosenthal, a vocal advocate for affordable housing, expressed her reservations about the lack of details in the proposal, stating, “The devil is in the details, and we need to see those details before we can make a judgment about whether this program will be effective.”

Samuel Stein, director of housing policy at the Community Service Society, criticized the proposal for excluding tenants from the negotiation process. He argued that tenants should have a say in determining the affordability levels and other key aspects of the program that will directly impact their lives.

On the other hand, Howard Slatkin, a prominent real estate developer, emphasized the importance of a new tax incentive to make effective use of the Mandatory Inclusionary Housing (MIH) program, which requires developers to include a certain percentage of affordable units in new residential developments. Slatkin believes that ANNY, if structured properly, could provide the necessary financial incentive to encourage developers to participate in MIH.

Perhaps the most contentious aspect of the ANNY proposal is the role of labor unions in determining wage standards for qualifying projects. Governor Hochul’s proposal places the onus on real estate interests and labor unions to negotiate a memorandum of understanding (MOU) establishing these standards. However, skepticism abounds regarding the good faith of the parties involved, particularly the Real Estate Board of New York (REBNY), in reaching an agreement that prioritizes workers’ rights.

Kevin Elkins, president of the United Building and Construction Trades Council, expressed his doubts about REBNY’s willingness to negotiate in good faith. He said, “REBNY has a long history of fighting against prevailing wage laws and other measures that protect workers’ rights. We have no reason to believe that they will suddenly change their tune.”

REBNY, for its part, has pledged to work with stakeholders and pay fair wages and benefits to construction workers. However, the lingering distrust between labor unions and REBNY casts a shadow over the prospects of a successful negotiation.

Legislative Negotiations and Priorities

As the state legislative session gets underway, lawmakers are grappling with the challenge of crafting an ANNY program that strikes a balance between the competing interests of developers, tenants, labor unions, and the city itself. The stakes are high, as the success or failure of ANNY will have a profound impact on the future of affordable housing in New York City.

Senator Brian Kavanagh, chair of the Senate Housing Committee, acknowledged the need for a tax break but also expressed his hope to include tenant protections in the discussion. He said, “We need to make sure that any new tax break program includes strong tenant protections and that it is used to create truly affordable housing that is accessible to low- and moderate-income New Yorkers.”

Assemblymember Rosenthal indicated that she would be open to a deal that gives HPD some discretion in setting affordability levels, provided that there is broader stakeholder involvement. She said, “I think there’s room for negotiation here, but we need to make sure that HPD is accountable to the public and that there are clear standards in place to ensure that the program is used to create truly affordable housing.”

Governor Hochul, recognizing the urgency of the situation, has called on stakeholders to engage in amicable negotiations and find a solution within the next few months. She said, “We need to come together and find a way to create a program that works for everyone. We need to find a way to build more affordable housing, protect tenants, and support good-paying jobs.”

Conclusion

The path forward for ANNY is fraught with challenges. The complex negotiations ahead require a delicate balancing act between the competing interests of developers, tenants, labor unions, and the city. The outcome of these negotiations will determine whether New York City can maintain its vibrant diversity and ensure that all New Yorkers have access to safe, affordable housing.

As the debate unfolds, one thing is clear: the stakes are incredibly high. The future of affordable housing in New York City hangs in the balance, and the decisions made in the coming months will have a lasting impact on the lives of millions of New Yorkers. It is imperative that all stakeholders approach the negotiation table with a spirit of compromise and a shared commitment to finding a solution that serves the best interests of the city as a whole.