As policymakers in Albany continue to craft a housing package that features a property tax exemption aimed at stimulating housing construction that includes affordable housing, it’s critical that leaders pay more attention to meeting the needs of New York City’s lower-income families.
The now-expired 421-a tax exemption was vital in adding multifamily housing across New York City neighborhoods. Between 2010 and 2020, at least 123,500 new homes in multifamily buildings were constructed using the exemption, with 20% of those homes designated for households at specific income levels.
Little information has been made public about who will be served by the affordable housing the new program will require. But policymakers appear to be converging around a requirement that buildings with fewer than 150 units in most areas would need to provide 20% or 25% of the apartments to households earning 80% of Area Median Income ($111,950 for a family of 3 in 2024) to qualify for the exemption.
This would be a significant step backward. First, it fails to account for the disproportionate growth in Area Median Income (AMI) relative to broader economic indicators. Since 2015, the regional AMI, as established by the U.S. Department of Housing and Urban Development, has increased by 80%, rising from $77,700 to $139,800 for a family of three.
This surge far exceeds the 27% rise in the region’s Consumer Price Index during the same timeframe, a period when many households did not see their incomes keep pace. The result of this sharp increase in AMI is that creating an apartment at 80% AMI in 2024 is effectively equivalent to creating one at 109% AMI in 2015.
Buildings with 150 or more apartments accounted for about 47% of all units built with the exemption between 2010 and 2020. For those sized buildings, in the high-rent areas in which certain wage levels would be applied, affordable restrictions would apparently be set at 60% AMI.
Setting a 60% AMI in 2024 (about $84,000 for a three person household) is equivalent to 82% AMI in 2015. It bears noting that in exchange for the affordability in those larger buildings in high rent areas, policymakers appear willing to grant properties a 40-year exemption from all of the added value that comes from that new building.
A program requiring less affordability (because of the disproportionate increase in the AMIs) in exchange for a more generous tax exemption goes in the opposite direction of where reforms should be heading.
Only by reserving apartments in more buildings within high-rent areas for families earning in the 50 to 60% AMI range will the exemption’s affordability requirements meet the needs of households with incomes at the citywide renters’ median. Those lower-income renters face the greatest rent burdens.
Further, it is particularly important to serve lower-income households in those areas because research shows that having affordable housing in those “neighborhoods of opportunity” opens doors for children in low-income households, and helps to address the persistent income and racial segregation of the city.
The governor and Legislature need to focus on households further down the income ladder who need the help the most. That said, serving lower income households requires striking a tricky balance. No tax exemption can be one-size fits all, given that rents vary tremendously across neighborhoods.
While Albany policymakers risk requiring housing that does not serve lower-income households in the strongest markets, they might also impose affordability requirements that render development financially infeasible in others.
Not all of New York City’s neighborhoods have the market conditions to absorb the same depth and share of affordability. Requiring even 25% of new multifamily housing to be rented to households with earnings at 80% AMI could have the effect of hampering development outside of high-rent areas.
A more nuanced approach of adjusting the share of affordability down to 20% of the apartments, while still serving households making up to 80% AMI, or requiring 10% of the apartments to be available at an average of 60% AMI, might be necessary in some neighborhoods.
Complex as threading the needle is, the governor and Legislature must work to craft a fiscally responsible tax exemption that will make it feasible to build housing all across the city, while securing more housing that lower-income New Yorkers can afford.
Been is the faculty co-director, Murphy is the executive director, and Willis is the senior policy fellow of the NYU Furman Center, a research center that advances research and debate on housing, neighborhoods, and urban policy.
