The Real Estate Board of New York to The City Council Committees on Housing and Buildings and Finance on Housing Tax Incentives

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The Real Estate Board of New York (REBNY) is the City’s leading real estate trade association representing commercial, residential, and institutional property owners, builders, managers, investors, brokers, salespeople, and other organizations and individuals active in New York City real estate. REBNY appreciates this opportunity to provide comments regarding housing tax incentives.

New York City is in the throes of a supply-driven housing crisis that is caused by a lack of housing needed to meet the city’s diverse socioeconomic needs. Recognizing this reality, both the Mayor and Governor set a goal of 500,000 new units by 2034 in New York City. Reaching this goal would require a significant increase in housing production over historic levels, equal to about 50,000 new units on an annual basis.

It is widely recognized that property tax incentives are needed to support housing development because the combination of tax relief and the income generated from market rate units is needed to offset the costs of developing rental housing that also includes long-term below-market rate (“affordable”) units. This reality is compounded in New York City by the broken and unequitable property tax system that imposes very high costs on rental buildings, typically between 25 and 35 percent of gross income. While the system is surely in need of change, even in municipalities across the country where property taxes are much lower than in New York, tax incentives are offered to encourage the production of housing generally and for below market rate housing in mixed income buildings.

For over 50 years, 421-a was a major housing production tool for the City of New York. As the program was renewed, policy changes were made to morph this from a pure production tool to an integration tool that encouraged private sector to include affordable units in higher income neighborhoods where City resources did not go as far. (Over time, wage mandates for building service and construction workers were also incorporated into the program’s requirements.) According to NYU Furman Center, nearly 70% of multifamily units completed between 2010 and 2020 were built using a 421-a exemption. The same report also noted that very few units are built without some form of tax support, consistent with national practices.

Therefore, absent viable tax incentives, one can reasonably expect housing production by the private sector to drop off significantly. Unfortunately, this is exactly what happened following the expiration of the 421-a tax incentive in 2022. At the time, REBNY’s Foundation Permit Report found that foundation filings drastically fell since the 421-a expiration in June 2022. REBNY’s Q4 2022 Construction Pipeline Report showed a 68% decline, year-over-year, in new application filings for multi-family housing overall.

Presently, the private sector has two as of right tax tools available for the creation of mixed income rental buildings – 467-m for office to residential conversions and 485-x for ground up, new construction. While the private sector may also access 420-c and Article 11 tax programs, those are designed to work in conjunction with HPD term sheets and require discretionary approvals, and historically have made up a smaller share of annual housing production for the City.

Viable tax incentives are essentially defined by their uptake, or how frequently the incentive is used and the number of units it produces. Several economic fundamentals should be kept in mind when designing tax incentives: 1) the cost of construction, 2) the cost of operating housing, and 3) the cost of money to borrow to pay for construction and operation.

Looking at 467-m through the dual lens of economic fundamentals and program design, we see significant uptake of the program and, as a result, the delivery of affordable units. The program is voluntary, with well-targeted income-restrictions and affordability levels and requirements for prevailing wage for building service workers. This incentive is priced to encourage uptake, in accordance with best practices from around the country. It incentivizes mixed income rental housing production as it balances the share of affordability, AMI levels, wage requirements, and benefit length in recognition of the permanent reduction in revenue the income restricted units represent.

485-x does not meet economic fundamentals and faces additional bureaucratic hurdles in its program design. The selected AMI levels result in affordable units renting below their operating expenses, while new wage requirements have increased construction costs by approximately 20%. Compliance with the construction wage standards requires additional documentation and enforcement processes subject to local rule making by the Comptroller, which has yet to occur.

Consequently, the current 485-x program design is leading to significantly less unit production than seen under 421-a. According to an HPD dataset released on May 24, 2025, 118 projects with ~2600 apartments have filed so far for 485x. Per HPD, all of the 118 registrations are for buildings with less than 100 units, with an average of less than 25 units. In Q2 2025, filings for mid-size residential buildings (50 to 99 units) increased significantly. There were 41 such buildings containing a total of 3,214 dwelling units, which is 116 percent more buildings and 139 percent more units than the historical average since 2008. Eleven of these buildings had exactly 99 proposed units, suggesting developers are structuring projects to stay just below the 100-unit threshold that triggers certain requirements under the 485x program. Larger projects, which historically represented approximately 11% of the projects but nearly 40% of the units, has stalled. Additionally, the new tax tool is more likely to be used outside of Manhattan than within.

The private sector is a critical contributor to the production of housing. Our housing crisis will persist without the tools to meet demand, and those tools must follow both program design best practices and economic fundamentals to be viably used if we are to produce the housing New York City needs at scale.

Thank you for the consideration of these points.