New Yorkers despairing about the housing-supply crisis can breathe a small sigh of relief thanks to much-needed state legislation passed in April. In a negotiating triumph for Gov. Hochul, the Democratic supermajorities in both houses of the Legislature — previously bent on driving private capital out of the housing sector since taking control in 2018 — showed unexpected flexibility and a measure of common sense. However, while this deal is better than no deal, it is far from a solution — it’s intended as much to appease political stakeholders as to assist New Yorkers.
At its core, the state housing deal traded a New York City property-tax exemption for new housing, replacing an earlier program that expired in 2022, for rent controls on previously market-rate units. The first was a priority for Hochul, Mayor Adams and the real-estate industry; the latter, known as “good-cause eviction,” was championed by the Legislature and tenant activists.
The new tax exemption, called “485-x,” will help ensure the construction of new privately financed rental housing. Without it, underlying state law places rental housing at a disadvantage compared to cooperatives and condominiums.
So how does 485-x work? It equalizes taxation of new rental and ownership housing but does not stop there. Like its predecessor, “421-a,” it also requires developments that receive tax breaks to include affordable housing. Additionally, 485-x specifies higher construction wages in larger buildings. This is an expensive package; depending on size and location, new buildings are fully exempt from property taxes for up to 40 years.
The good news is that the tax exemption likely works well for buildings with fewer than 100 units, which are not subject to wage standards. We will probably see many 99-unit apartment buildings in the next decade. However, the law works less well for larger buildings, which need very high rents on the market-rate units to be economically feasible.
The “good-cause eviction” law applies only in New York City but could be adopted by other municipalities. This law introduces a loose version of rent control on units not subject to rent stabilization and not meeting many other exclusions. Essentially, it benefits affluent households, primarily in Manhattan, with a newly granted ability to take their landlord to court and gain negotiating leverage to remain in their units when their leases expire.
Given that there is no evidence these households were suffering without these new rights, one might reasonably question the necessity of this law. The answer is that legislators hope for voters’ gratitude. That the “good-cause” law will exacerbate the city’s already low rental vacancy rates seems not to concern them.
The legislative housing deal includes many other provisions. A helpful extension of the deadline for filing for 421-a tax benefits will allow some projects to proceed while avoiding the new construction wage standards. Less helpfully, other provisions allowing bigger new buildings and encouraging affordable units in converted office buildings are so laden with conditions that they will be underutilized. An amnesty for currently illegal basement and cellar dwelling units is limited to a handful of community districts — not those where the need is greatest. A minor change to the draconian 2019 rent law will free up only a few vacant units that have been too costly to renovate and return to the rental market.
Unlike many other states, the Legislature conspicuously did nothing to overcome exclusionary zoning in the downstate suburbs, where many NIMBY-ish communities notoriously allow little new development. Its priority is clearly to avoid creating an issue Republicans can seize upon in critical House races in the fall. Nor did the Legislature reform the state’s onerous environmental review requirements for new housing — another development killer.
With this combination of half-measures and omissions, the housing crisis will be somewhat alleviated but will remain a significant constraint on job growth and economic opportunity, as well as a financial burden on the…