Navigating Change: The NYS Budget’s Impact on the Real Estate Industry - Report

Executive Summary

The 2024-2025 New York State budget introduces significant changes to the real estate industry through three new programs. The "Affordable Neighborhoods for New Yorkers" program replaces the expired 421a incentive, offering tax exemptions for multifamily housing construction in cities with populations over one million, contingent on meeting wage and affordability criteria. The "Affordable Housing from Commercial Conversions" program incentivizes converting unused office space into affordable housing, providing tax breaks up to 35 years. The "Good Cause Eviction Law" requires landlords to have valid reasons for evictions, with several exemptions to protect tenants from unjust evictions and excessive rent increases. These initiatives aim to increase affordable housing and provide tenant protections, necessitating careful compliance and strategic planning by developers and landlords. Collaboration among stakeholders will be essential to ensure successful implementation and long-term benefits for the housing market.

Introduction

The recently passed 2024-2025 New York State budget introduces significant changes impacting various sectors, including health care, public safety, artificial intelligence, and education. Notably, the budget also addresses housing-related concerns affecting landlords, tenants, and developers. Since the expiration of the 421a program in 2022, the real estate industry has sought new incentives to stimulate growth and adapt to the evolving market. This report examines three newly developed programs designed to aid the real estate industry: the “Affordable Neighborhoods for New Yorkers” program, the “Affordable Housing from Commercial Conversions” program, and the “Good Cause Eviction Law.”

Affordable Neighborhoods for New Yorkers Program

The “Affordable Neighborhoods for New Yorkers” program, codified under Section 485-x, replaces the expired 421a incentive program. This program aims to stimulate the construction of qualified multifamily dwellings by offering exemptions from real property taxes in cities with populations exceeding one million, such as New York City.

The program stipulates that eligible projects must have commenced after June 15, 2022, and no later than June 15, 2034. Construction must be completed by June 15, 2038. Projects must meet specific construction wage standards and ensure that income-restricted units are permanently affordable. The size of the construction project determines the number of affordable units and the duration of tax abatements, which range from 10 to 40 years.

Additional requirements include retaining original payroll records and notifying the comptroller three months in advance of starting construction for buildings with more than 100 units, or face fines up to $5,000 a day and forfeiture of tax abatements. Developers can bypass reporting and wage requirements by signing a Project Labor Agreement (PLA) or agreeing to 100% use of union labor. Projects already enrolled in the 421a program before its expiration are extended by six years, giving developers until June 15, 2031, to complete construction.

This program provides significant incentives for developers to invest in multifamily housing projects, potentially increasing the supply of affordable housing in major cities. However, the stringent requirements and penalties necessitate careful planning and compliance by developers.

Affordable Housing from Commercial Conversions Program

The “Affordable Housing from Commercial Conversions” program incentivizes the conversion of unused office space into affordable housing through regulatory easing and tax incentives.

To be eligible, conversion work must commence between January 1, 2023, and June 30, 2031, and projects must be completed by December 31, 2039. At least 25% of the new apartments must be affordable at a weighted average of the area median income (AMI), including 5% at 40% of the AMI. All affordable units must remain permanently affordable and rent-stabilized.

For properties south of 96th Street in Manhattan, a 90% tax discount off the effective residential rate is provided. In other areas, a 65% tax discount is provided. The tax break phases out in its final five years.

This program addresses the dual issues of vacant commercial spaces and affordable housing shortages. By converting underutilized office buildings into residential units, developers can benefit from substantial tax incentives while contributing to urban revitalization and housing affordability.

Good Cause Eviction Law

The “Good Cause Eviction Law” establishes stricter regulations on evicting tenants, requiring landlords to have a valid reason or “good cause” for eviction.

Good cause criteria include nonpayment of rent, nuisance, substantial damage, illegal use of premises, or demolition. Landlords must obtain a court order to evict tenants upon showing “good cause.” The law automatically applies in New York City, with other localities having the option to opt in.

Exemptions include buildings constructed in 2009 or later, which are exempt for 30 years from completion; apartments with a monthly rent greater than 245% of the fair market rent; units owned by small landlords with 10 or fewer units within New York state; and owner-occupied buildings with 10 or fewer units. Tenants can challenge evictions resulting from rent increases greater than 10% of the existing rent or 5% above the Consumer Price Index, whichever is lower.

This law aims to protect tenants from unjust evictions and excessive rent increases, fostering housing stability. However, it also introduces challenges for landlords, particularly small landlords, who may face increased legal and regulatory hurdles.

Conclusion

The 2024-2025 New York State budget's inclusion of targeted housing legislation highlights a concerted effort to address the housing crisis affecting landlords, tenants, and developers. The “Affordable Neighborhoods for New Yorkers” program offers significant tax incentives for multifamily housing construction, while the “Affordable Housing from Commercial Conversions” program encourages the adaptive reuse of commercial spaces. The “Good Cause Eviction Law” provides protections for tenants, ensuring housing stability amidst rising living costs.

Recommendations

For developers, it is crucial to carefully review and comply with the new program requirements to maximize benefits and avoid penalties. Considering signing PLAs or using union labor can streamline compliance processes. For landlords, staying informed about the “Good Cause Eviction Law” and its exemptions is essential to navigate the new regulatory landscape effectively. Developing strategies to address potential legal challenges related to rent increases and evictions is also recommended. Policymakers should monitor the implementation and impact of these programs to ensure they achieve the intended goals of increasing affordable housing and protecting tenants. Engaging with stakeholders to gather feedback and make necessary adjustments to enhance program effectiveness is vital.

As these initiatives unfold, collaboration among stakeholders will be crucial to ensure the effective execution and long-term success of these measures, ultimately contributing to a more stable and affordable housing market in New York State.

For expert guidance on navigating these new legislative changes and maximizing the benefits for your real estate projects, contact Gallagher & Mohan. Our team of specialists is here to help you understand the implications of the NYS budget and provide tailored solutions to ensure your success in the evolving real estate market. Reach out to Gallagher & Mohan today and let us support you in achieving your real estate goals.

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