Kathy Hochul Calls for New 421a in State of the State

If at first you don’t succeed, blame the legislature and try again.

Gov. Kathy Hochul in her State of the State speech today called for a replacement to the property tax break 421a and an extension to the completion deadline for the now-expired exemption.

The governor in 2022 offered a replacement dubbed 485w, but it failed to gain traction with legislators. Last year she pitched a four-year extension of a deadline that requires projects to be completed by June 2026 to receive the 421a tax break. That also failed to pass.

As part of her 2024 agenda, the governor wants the state legislature to let New York City offer a tax abatement for rental construction, seemingly putting the city in position to shape and enact it. But the city would not have carte blanche: The program, like its predecessor, would have to include requirements for affordable housing and wage standards for building service and construction workers.

“I remember last year, many of the loudest voices in opposition said they believed in local control,” Hochul said during her speech, referring to opposition to her broader housing plan last year. “Well, let’s put that to the test. The city of New York, which is a local government, wants to build 500,000 more homes over a decade. I agree. Let them build.”

Without a new tax incentive, “housing construction will slow to a crawl,” according to the governor’s State of the State Book. Hochul also plans to propose an extension to the completion deadline, which the book refers to as a “straightforward matter” for the legislature. But legislators balked at the idea last year, believing that 421a delivers too little affordability for the 35-year tax break it grants to rental projects.

The State of the State Book, which provides some details on Hochul’s policy agenda for the year, does not mention good cause eviction or even ramping up tenant protections in the context of replacing 421a. It does call for a new enforcement unit dedicated to responding to Section 8 discrimination complaints.

Democratic leaders in the Senate and Assembly have tied 421a and good cause together, making clear that any development incentive would need to be accompanied by new tenant protections.

Lawmakers last year hoped to pass a housing plan that included a version of good cause eviction and an extension of the 421a deadline, but a deal never materialized. Hochul has not been supportive of good cause, which would give tenants the ability to challenge rent increases above a certain threshold. Supporters and critics alike have called it universal rent control.

Last week, addressing members in their respective chambers, Senate Majority Leader Andrea Stewart-Cousins and Assembly Speaker Carl Heastie emphasized the need to reach a deal that protects tenants and incentivizes the construction of affordable housing. Stewart-Cousins said the plan would need to include the “principles of good cause.” Lawmakers and tenant advocates spoke out against the governor’s exclusion of tenant protections in her speech.

“Skyrocketing rents are driving New York’s affordability crisis – and yet @GovKathyHochul continues to oppose basic protections against rent hikes and evictions,” Housing Justice for All wrote on the social media platform X. “Renters make up half the state. But Gov. Hochul’s so-called affordability agenda leaves us out in the cold.”

The governor appears exasperated with the legislature and in the book repeatedly notes its inaction on some of her previous proposals.

The line “will again” appears a few times in her State of the State Book: She “will again” push authorizing the city to legalize existing basement apartments. She “will again” propose lifting the city’s cap on residential floor area ratio, which is stuck at 12 and restricts the conversion of aging and increasingly unwanted office stock into housing.

Hochul is also pitching a tax incentive for office conversions that include below-market housing. Sen. Brian Kavanagh has a bill that would do this, and Sen. Peter Harckham recently proposed a similar measure, although it’s not clear that either would be of much use to developers.

The city is separately pursuing zoning changes that would allow buildings constructed before 1990 to be converted, but it would be up to the state to create an incentive and to lift the FAR cap.

The governor plans to propose legislation to prevent insurance carriers from basing coverage of a building on whether tenants receive government assistance or if a property has below-market units. This appears to be the only nod in the book to challenges faced by owners of rent-stabilized housing.

Landlord group Community Housing Improvement Program is pushing for legislation that would create a government-backed insurance program for affordable housing providers amid soaring premiums.

Hochul will not reintroduce the housing growth mandates that were part of her New York Housing Compact in 2023. Last month Hochul acknowledged that the challenges of moving that proposal forward were further exacerbated by elections this year. The compact faced pushback from Republicans, and Democrats favored an incentive-based approach over mandates.

Instead, Hochul has focused on executive actions, including an alternative to 421a for projects in Gowanus. The state has already received 19 applications for that program, which would net 5,500 apartments if all approved. That program could be expanded to other parts of the city.

The governor also launched an incentive program in which localities that are designated a Pro-Housing Community are given priority for discretionary funds. To be pro-housing, local governments must show that they have approved permits that would increase housing stock by 1 percent (if downstate) or 0.33 percent (if upstate) in the past year, or by 3 percent or 1 percent over the past three years.

Hochul plans to adjust criteria for some discretionary funding programs to make it a requirement that localities achieve Pro-Housing certification.

“This new requirement will strengthen the Pro-Housing Community Program and truly test the question of whether an incentives-based approach can drive the change we need to increase housing supply or if stronger mechanisms are needed,” the book states. Housing groups say incentives typically fail to accomplish much because of local sentiment against development.

The governor has also taken action to build housing on state-owned sites that could net as many as 15,000 new units of housing. This year she is seeking to establish a $500 million fund for infrastructure and to aid in the conversion of these sites.