A shortage of affordable housing amounts to one of the most persistent problems facing the city.

Every mayor since Ed Koch in 1978 had building more affordable housing on their to-do list, but the state Legislature allowed a controversial but popular development incentive to expire in June.

What You Need To Know

  • Lawmakers decided not to extend 421a, in part, because opponents considered it a real estate giveaway
  • The law gives builders tax breaks to construct affordable housing along with market rate units
  • The city issued permits for more than 58,000 housing units in the first half of 2022 before the tax break ended
  • Typically, at least 80% of permitted units get built

That led to a glut of applications, but experts say many of them won't come to fruition.

“This is a very, very, very precarious time to be a developer,” said developer Eli Weiss.

Weiss said borrowing money is pricier because of higher interest rates, and supplies cost more because of inflation.

“We’ve had about a 30 to 35% increase in the last 18 months in construction pricing.”

Despite the inflation, Weiss rushed to submit two applications for big tax benefits before the law, known as 421a, expired in June. It gives builders tax breaks to construct affordable housing along with market rate units.

"The tax abatement allows the market-rate units to be built, so ultimately, what you're doing is you're creating more housing supply both at the market-rate level, but you're also creating affordable units without the city having to write capitol dollars into the project directly," Weiss said.

Lawmakers decided not to extend 421a in part because opponents considered it a real estate giveaway.

As a result, the number of applications for 421a ballooned before the expiration in June.

The city issued permits for more than 58,000 housing units in the first half of 2022. That’s more than the two previous fiscal years combined.

But the projects must be completed within four years to qualify for the benefits.

“Developers are now facing a very difficult timeline in a very difficult economic environment,” Weiss said.

While it's uncertain how many of the issued permits will actually turn into completed units, the Department of City Planning reports typically at least 80% of them get done, and even if it's lower, the city will still likely see a surge in units because of the huge number of applications.

“It’s important to watch what those permit numbers are going forward and not just looking at the new housing going up as a result of the expiration and say, ‘See. Everything is fine,’” said Charles McNally, director of external affairs of the Furman Center for Real Estate and Urban Policy.

McNally said the final surge of 421a housing developments will mask the longer term decline in construction of affordable units because of the incentive's expiration.
“We have reason to believe those permit numbers will decline significantly now that the program no longer exists,” McNally said.

Developers say, without a re-ignition of 421a, they worry.

Weiss said he's somewhat hopeful, though, because of the new plan introduced by Mayor Eric Adams to streamline the construction of 500,000 affordable housing units.

It aims to accelerate new construction approval by half.