Affordable Housing in New York Catches a (Tax) Break
The New 485x Program Helps Building Owners Deliver Affordable Housing Again
By Andrew M. Musci, Director
While New York City (NYC) has experienced a housing crisis since the June 2022 expiration of 421a — a program providing property-tax exemption for affordable housing — replacement program 485x is now included in the New York State 2025 Budget to help calm that crisis and boost incentive to build affordable housing again.
Known as the Affordable Neighborhoods for New Yorkers Program, we outline below the objectives of 485x, its eligibility criteria, benefits and what we expect will be the broader impact on development in NYC.
Objectives of 485x
With the objective to produce affordable housing and stabilize the NYC office market, program 485x is designed to:
- Stimulate Investment: With a reduction in tax burden on property improvements, the program aims to motivate developers to invest in affordable housing, even providing incentive to convert office space to residential.
- Restore Neighborhoods: The program’s goal is to reinvigorate neighborhoods that are either underdeveloped or in decline to make them more appealing to residents and businesses.
- Create Jobs: With the expansion of businesses and properties, the additional workforce required will generate employment opportunities and, in some instances, require a minimum hourly wage for construction workers on these projects.
- Ignite Economic Development: The program will be instrumental in the overall economic health and redevelopment of NYC.
Eligibility Criteria and Benefits for Building Owners/Developers
To receive the intended tax breaks of program 485x, building owners/developers must submit an application, to include business plans, costs and a timeline for completion of new construction, renovations or office-to-residential conversions.
The 485x program uses a tiered system based on project type/size, which defines the different affordability and income requirements, property-tax exemption periods and wage requirements for each tier. We break it down here as Affordability Tiers A, B, C and D and provide information for owners considering conversion of their office space to residential.
Tier A: Very Large and Large Rental Projects
Requirements for: Percentage of Affordable Units, Location/Zone, AMI, Construction-Worker Wage
Very Large Rental Projects consist of 150 or more rental units that must be located in one of two different zones to be eligible for the program:
- Zone A includes any tax lot located entirely south of 96th street in the borough of Manhattan or in any of the following neighborhood areas as defined by the NYC department of planning: Brooklyn 0101 to 0104 and Queens 0201.
- Zone B refers to any tax lot located entirely in any of the following neighborhood areas: Brooklyn 0201 to 0204, Brooklyn 0601 to 0602, Brooklyn 0801, Queens 0105 and Queens 0102.
- For a very large rental project in either zone, at least 25 percent of the units must be affordable and the weighted average of all income bands for all the affordable housing units must not exceed 60 percent of the average medium income (AMI).
- The property exemption period is 40 years.
- Depending on which zone is being developed, there are various wage requirements for construction workers.
Large Rental Projects consist of 100 or more rental units and also require that at least 25 percent of the units be affordable.
- The weighted average of all income bands for all the affordable housing units must not exceed 80 percent of the AMI.
- The property tax exemption period is 35 years.
- This tier also includes minimum wage requirements.
Tier B: Modest and Small Rental Projects
Requirements for: Percentage of Affordable Units, AMI
Modest Rental Projects consist of more than five and less than 100 residential units, of which 20 percent must be affordable.
- The weighted average of all income bands for all the affordable housing units must not exceed 80 percent of the AMI.
- The property tax exemption period is 35 years.
- This tier does not include minimum wage requirements.
Tier C: Small Rental Projects
Requirements for: Square Footage, with All Being Rental Units, 50 Percent Stabilized
Small Rental Projects consist of more than five and less than 11 residential units which are located outside of Manhattan on a zoning lot that permits a residential floor area of less than 12,500 square feet.
- All units included must be operated as rental housing and at least 50 percent shall be subject to rent stabilization for the restriction period.
- There is a 10-year tax exemption period.
- No income or wage requirements apply to this tier.
Tier D: Home Ownership (Condo/Co-Op)
Requirements for: Square-Foot Value, Residence, Construction-Worker Wage
Home Ownership (Condo/Co-Op) Projects require 100 percent of the units to have an average assessed value per square foot that does not exceed $89 upon the first assessment following project completion.
- Each owner of any such unit must agree to maintain such unit as their primary residence for no less than five years.
- There is a 20-year tax exemption period.
- Minimum wage requirements are included for these projects.
Conversion of Office to Residential
Requirements for: Percentage of Affordable Units, AMI, Deadlines for Permits
The 485x program also offers incentives to landlords who convert their office buildings to residential, with a timeline for obtaining permits designed to jumpstart office-to-residential projects.
- 25 percent of the units must be set aside as affordable housing at an average of 80 percent AMI.
- Buildings with permits issued by June 2026 qualify for 35 years tax exemption, with buildings that obtain a permit after June 2028 entitled to only 25 years.
485x is a Win-Win for Both Building Owners and Residents in New York
Two years after the expiration of the last affordable-housing initiative, New York gets a break again with the new 485x tax abatement program. PKF O’Connor Davies is optimistic about the opportunities this new program will bring to both building owners and residents and how it will positively contribute to the infrastructure and development turnaround of New York.
Contact Us
We’re here to help you sort through the criteria and requirements of program 485x. If you have any questions, contact your PKF O’Connor Davies client service team or:
Andrew M. Musci, CPA
Senior Manager
amusci@pkfod.com | 914.421.5649
Jennifer M. Galasso, CPA
Partner
jgalasso@pkfod.com | 914.341.7067