The state Legislature’s effort to replace a longtime tax credit to promote city housing production is proving to be not good enough. They need a redo to bring down the cost of housing.
The new credit is called 485-x; it replaces 421-a. 421-a, first established in 1971, gave developers up to 35 years of tax relief for producing new apartments. Over the years — including in 2008 and 2017 — policymakers added affordability requirements, but they were never enough to satisfy those who wanted less government aid and more low-cost units produced, who tended to see the program as a too-generous giveaway to real estate. The credit lapsed in 2022.
Enter 485-x, enacted in 2024 on the ashes of 421-a. It strengthened affordability mandates, added wage standards and layered on sustainability and green building requirements. All of which add up to a policy that might make sense on paper, but which struggles to work well in the real world of real estate economics.
Under 485-x, condos and coops outside Manhattan can then get up to 40 years of property tax exemptions — with some pretty strong strings attached.
Projects must build in set amounts of affordable housing in order to qualify, and those shares range based on the size of the project.
There are new wage standards for construction workers — the larger the project, the higher the wage floor. Projects with 100 or more units have to pay workers at least $40 per hour; projects with 150 or more units have to pay between $63 to $72.45 per hour. These requirements can be waived if the developer enters into a Project Labor Agreement or uses 100% union labor.
And all projects must make “reasonable efforts” to spend at least a quarter of applicable costs on contracts with minority- and women-owned business enterprises.
They fiddled too much and in pursuit of many different objectives, priority inevitably gets piled atop priority, such that, for instance, a plan to build more affordable housing also becomes a plan to ensure workers are better paid, and a plan to fight climate change, and so on.
That what happened with the new 485-x and we’re seeing the results. In the first 10 months since the program opened for applications, 118 building registrations have been received, representing approximately 2,600 new homes. That’s…not a lot. The average project size is less than 25 homes per building — quite possibly because of how the government-mandated wage floor rises sharply as a planned building gets bigger.
All new housing starts are welcome. And it’s not a bad thing that a bigger-than-usual share of these starts are for homes that can be owned as opposed to just rentals. And it’s certainly not a bad thing that the guaranteed-to-be affordable units being produced — about 540 out of the 2,600 apartments in question — are earmarked for people at 80% of Area Median Income, a lower threshold than most other programs have achieved.
But the fact that the new program is producing more of a trickle than a flood of new construction is concerning. With vacancy rates at an unheard-of 1.4% and rents going up and up and up, New York needs scads of new units. A few thousand produced a little bit at a time won’t cut it.
