How will Hochul respond to New York’s housing crisis?
Tax abatements, tenant vouchers, and zoning overrides are just some of the tools the newly elected governor could deploy.
While running for reelection, Gov. Kathy Hochul pledged to jumpstart the construction of 500,000 to 1 million new homes to deal with a housing crisis that stretches from New York City to the suburbs, and even upstate.
But first, in the two months before she’ll lay out her priorities in her State of the State speech and budget plan, she will have to choose from a dizzying list of proposals from Mayor Eric Adams, real estate interests, tenant groups and others. They seek tax breaks, new subsidy programs, changes to override local zoning rules and more.
What is certain is that housing will be one of if not the most important issue the newly elected governor and legislature will confront when the new session opens in January.
“Gov. Hochul campaigned talking about housing. More and more elected officials are focused on housing, for example Queens Borough President Donovan Richards and Rep. Alexandra Ocasio-Cortez,” said James Lloyd, director of policy for the New York State Association for Affordable Housing, which represents for-profit developers. “A growing chorus says we need to build now and in every community.”
What isn’t clear even to insiders is what policies Hochul favors and what will win the support of Democrats in the legislature, where progressives dominate the Democratic caucus that still holds a supermajority, allowing them to override the governor’s veto if they want.
By any measure, New York is coping with a housing crisis. Rents have soared for market-rate apartments in the last year as the city recovered from the pandemic. One-third of New Yorkers spend half their income on rent. And the city is simply not building enough housing to keep up with population growth or moderate price increases.
The Adams administration has already outlined its wish list of possible solutions, in an appearance by chief housing officer Jessica Katz at a Citizens Budget Commission breakfast last month.
The city wants the legislature to enact a replacement for the controversial 421-a property tax break for housing developers, which expired in June. It also wants a tax break to replace the also expired J-51 program, which provided an incentive for rehabilitating apartments but hadn’t been used in recent years.
Adams wants the legislature to provide a pathway to legalize the thousands of illegal basement apartments and provide simplified ways for homeowners to create additional units on their property. And it wants the state to lift a cap on the overall size of residential buildings, which is in place even in areas where commercial buildings can be far higher.
“There was a lot left on the table in Albany last year,” Katz said at the CBC breakfast, “and we are getting ready to make that happen.”
Quest for tax breaks
The Real Estate Board of New York (REBNY), among other industry groups, want a replacement for lapsed tax breaks, but are not sure the legislature will be receptive. Hochul had proposed a replacement for 421-a in her budget proposal earlier this year that made only modest changes to the abatement, which provides an exemption from property taxes for up to 35 years. In exchange, developers are supposed to create income-restricted affordable housing within new residential buildings.
Insiders say that proposal is no longer viable but that no one knows what the next plan would look like. City Hall declined comment on what specifics they support in a new tax break.
Developers say burdensome property taxes and high costs of construction make building housing uneconomical without something like 421-a.
“New York City urgently needs to produce more rental housing, including a significant number of below market rate units,” said James Whalen, president of REBNY. “We hope the legislature will now take a different approach by focusing on common-sense policies that produce more of the rental housing New Yorkers desperately need.”
Opponents of 421-a that include the Legal Aid Society, Community Service Society and progressive Democrats in the legislature are expected to strongly oppose any tax break, saying it is an unneeded giveaway to well-heeled developers. The abatement program cost the city $1.8 billion in foregone property tax revenue last year — the largest tax break in the city — according to the recently released annual financial report from the city comptroller. It will be years until that number shrinks as the benefit phases out.
Instead of reinstating 421-a or creating a similar replacement for it, city Comptroller Brad Lander wants the legislature to focus more broadly on resolving inequities in the city’s property tax system, which imposes much higher taxes on rental properties than other kinds of housing. The system also protects homeowners in gentrifying neighborhoods from big increases while overtaxing residents in working-class areas.
He has formed a coalition that includes elected officials from every borough to push the idea. “We want to demonstrate broad support and be sure property tax reform is in the mix,” he said.
But real estate groups are split in their priorities. The Community Housing Improvement Program, which represents owners of rent-regulated buildings, is putting all its efforts behind what it calls a vacancy reset.
As THE CITY has reported, as many as 89,000 rent-stabilized units were vacant in New York City last year. Landlords claim that after 2019 rent law reforms capped how much they can charge new tenants for apartment improvements, they can no longer afford to repair them when longtime residents move out.
CHIP wants the legislature to allow the rent to be reset to market rates in such circumstances while the unit continues to be rent-regulated. Tenant groups oppose such a move, arguing instead for a tax to penalize landlords who harbor vacant units.
Tenant groups meanwhile plan to renew their efforts for an expanded voucher program to provide rental assistance to more tenants and their “Good Cause” eviction bill, which would set strict limits on rent increases across the board.
The Housing Access Voucher Program would provide vouchers for low-income New Yorkers at risk of homelessness and reduce their rent to 30% of their income. The groups are seeking $200 million in the next year to get the program off the ground, with the idea that it would expand over five years to $1 billion annually and help 75,000 families. It would reach people who do not qualify for federally funded Section 8 vouchers, which carry numerous restrictions.
“There are programs focused on helping people get out of shelters but they leave out a lot of people,” said Ellen Davidson, an attorney at Legal Aid. “People with mixed-status families; people who may have worked but don’t anymore, and others who don’t have permanent housing.”
Legal Aid and Housing Justice for All, a tenant advocacy group, are focused on winning the governor’s support for their Good Cause eviction bill, which says that landlords can renew leases only for a good reason. It would also in effect cap rent increase at 1.5 times the annual increase in the consumer price index.
“Good Cause eviction is common sense policy and it is really popular with Democrats and Republicans,” said Cea Weaver, an organizer for the group. And she has a warning for the governor: “Kathy won this election because progressive voters pulled her over the finish line.”
Real estate groups have told legislators they will not agree to a compromise in which one of their priorities — such as the property tax abatement — are approved along with Good Cause.
Shift to suburbs
Housing groups expect Hochul to resubmit legislation modeled on moves made recently in California that allow developers to build despite local zoning restrictions, around transit hubs, for affordable housing and areas zoned for single-family homes.
With an eye on the gubernatorial election, she withdrew that previous plan earlier this year, just 30 days after submitting them amid a storm of opposition on Long Island and criticism from her Republican opponent, Rep. Lee Zeldin, who said it was a “blatant attack on suburban communities.”
While the legislation is targeted at the suburbs, many housing advocates say more construction is needed there to help reduce the pressure on housing prices in the city. These groups argue that the New York City suburbs have strangled housing construction and prioritized single-family homes, leading to sky high prices in those areas, little access to those areas for people with moderate incomes or people of color.
“New York is behind other states in using its zoning powers to unlock housing, create fair share rules and limit exclusionary zoning,” says Rachel Fee, executive director of the New York Housing Conference, which advocates for affordable housing developers.
The clash of interests in Albany comes as the economic fundamentals of housing have changed radically, with a sharp increase in interest rates making building much more expensive. In addition, Wall Street profits have fallen and that is expected to put a squeeze on budgets for both the state and city, which will be worse if the country slips into a recession.
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