There are more people looking for housing than ever before within the five boroughs of New York City. The critical segment in many peoples opinion including my own is that of affordable housing usually in the form of apartment rentals. In boroughs like Queens and Brooklyn, you are probably a stone's throw away from either a newly built rental building or a development construction site. But what does this mean for our city?
As of the writing of this this blog post, the city’s population for 2022 is roughly 8,851,733 which is actually higher than the population recorded in 2019 ( pre pandemic) making NYC the most populated city in the United States. It’s not a surprise to think that housing, even just renting and not buying a property in NYC for the average individual or family has been increasing difficult.
To make things more challenging, a 50 year old (recently revised in 2017) legislation that incentivized development of affordable housing by providing up to 35 years of tax abatement has expired in June 2022. That legislation called 421a named after the tax code it originated from gave developers a tax break provided they set aside 25%-30% of a new building’s apartments for “ low income “ applicants. This in essence made developing an apartment building or complex more economically feasible by providing a property tax exemption for up to 3 years of construction and up to 35 additional years after the project is complete. This could potentially save a developer millions of dollars and has spurred many developments that otherwise might not have been built.
The reason I put “low income” in quotations is how the city defines it as well the sometime generous leeway the 421a program allows developers to use it.
In order to establish an apartment as affordable, the city (HPD- Housing Preservation and Development) requires developers to use what’s called the AMI ( Area Median Income). Each year, HUD (Housing and Urban Development) establishes this average area income for all cities in the country. For the 2022 New York City region, the AMI for one person is $93,400.00 and $120,100.00 for a family of three. See the full chart below:
Source: 2022 AMI - US dept of Housing and Urban Development.
To further define the categories of low income, those AMI’s are then broken down into percentages. See below:
So if you look at the category of “low income“ which is the one vastly used by the now sunset 421a program, you’ll see that a family of three would need to have an income of $61,171 to $96,800 to qualify.
Although there a some new buildings like Hallets Point 7 in Astoria Queens that are Extremely Low & Low-Income Affordability (ELLA). The issue here is that a fair amount of buildings use the moderate to middle income category making what’s billed as an affordable apartment anything but for the average New Yorker. For example, a three person family would have to show income of $156,130 to be considered for an apartment if the AMI is at 130%. Furthermore, a two bedroom apartment at that current level would be $3,603 per month.
See the chart below:
You might be thinking that the 130% criteria is few and far between but it if you have ever searched the NYC housing lottery (now housing connect) you would see this requirement quite often.
According to the New York City comptroller website:
“More than 60% of the income-restricted units created by the 2017 program (revised 421a) through 2020 were built for families earning 130% of the Area Median Income or well over $100,000 a year in 2021, making those units unaffordable to nearly 75% of New Yorkers.”
While measures like the 421a abatement in my opinion is an extremely welcomed and needed program to bring more affordable rentals online, I feel there is more that could be done. Not to mention the obvious issue previously stated that as of the writing of this blog post, the 421a program has now expired.
For it's replacement, New York’s current Governor...Kathy Hochul has proposed 485w dubbed the “ Affordable Neighborhoods for New Yorkers” program for the FY 2023 budget which mirrors the 421a with deeper affordability for renters. But her re-election and the opposition of her proposed 485w by the comptroller puts that new program in jeopardy.
The comptroller suggests that the 485w is basically just a tweak of the expired 421a. A program he, Brad Lander is critical of. He feels the city loses too much in tax revenue while the program does not offer true rental affordability to the average New Yorker. His office is in more support of structural property tax reform. That opinion can be read here.
I am personally of the opinion that a modified version of a tax abatement would be best to help provide more affordable rental units. Possibly having a cap on the percentage of the AMI or changing the income definitions altogether. For instance, having a standard of the “ low income" category that sets the AMI percentage at 51-80% or below and not allowing it to go to 130% and above which I think defeats the purpose. I believe the required reservation of affordable units should also increase from 25% - 30% to 30% - 40%.
I also think that a similar program of tax abatement could be offered to smaller “mom and pop” real estate owners and investors of 1-4 family property. For example; giving an owner of a two family property a tax abatement or other incentive as long as 50% of their units are rented to a tenant using a city, state or federally sponsored housing subsidy like Section 8.
My guess is that after the 2022 gubernatorial election, a new tax abatement will be proposed in the 2023 budget and ultimately passed sometime next year, but only time will tell. I think it’s clear that some adjustments are needed to actually make the initiative both attractive for developers to build and truly affordable for the average New Yorker to rent.
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