Here are the real estate policies to watch in Hochul’s budget

Gov. Kathy Hochul on Wednesday unveiled a $227 billion state budget plan aimed at ramping up housing production through zoning changes and tax incentives.

The budget proposal elaborates on Hochul’s previously announced “New York Housing Compact” establishing three-year housing targets for every city, town and village in the state. It also pitches incentives for office-to-residential conversions and an extension for projects that vested under the now-expired 421a tax break.

Hochul wants the state to add 800,000 housing units over the next decade, twice the number constructed in the last one. Her policies prioritize supply, putting her at odds with tenant advocacy groups concerned about rents and construction unions fearful of losing leverage.

“The bottom line is the more houses we build, you increase the housing stock, the prices go down. It is called supply and demand, and New Yorkers get what they deserve — options, opportunities,” Hochul said during a press conference Wednesday.

Here are the real estate measures in the governor’s plan, and some initial responses from the industry:

Builder’s remedy, sort of

The governor’s “New York Housing Compact” sets targets of 3 percent growth in housing stock every three years for downstate localities and 1 percent for those upstate. Her budget defines “localities” in New York City as community board districts, which means local leaders may feel pressure to approve rezonings and housing projects.

Localities could stretch out their target deadlines by three years by taking other steps to ramp up housing construction, such as allowing accessory dwelling units or eliminating exclusionary zoning.

Localities that fail to meet their targets or secure an extension would be open to “fast-track” project applications that need not abide by local land-use rules. To qualify, projects must have at least 10 units — 20 in New York City or other “metropolitan transportation commuter districts” — and set aside some as affordable.

The rules call for either 20 percent of units reserved for households making up to 50 percent of the area median income, or 25 percent for those earning 80 percent of AMI.

Local governments would have 120 days to approve or deny such applications, but could only reject them based on health and safety reasons or unmet size or affordability requirements. Environmental review is also limited to wastewater and drinking water infrastructure capacity, as well as “objective” aesthetic standards.

Developers could appeal denials to land-use judges or a new review board of three members appointed by the governor and two by the Senate and Assembly.

Many localities will not be keen to allow builders to circumvent their zoning, and some construction unions fear it will limit their ability to ensure developers use their workers.

“This would really move the dial on housing supply in New York.”

Rachel Fee, New York Housing Conference

“Governor Hochul’s proposal to revise local zoning is particularly concerning,” said Joseph Geiger, secretary-treasurer of the New York City District Council of Carpenters, in a statement. “The existing proposal will rob local elected officials, unions, and others protecting exploited workers of the only leverage they [have] to force powerful developers to provide good jobs and benefits.”

The fast-track policy is similar to builder’s remedy measures in California, New Jersey and other states. As part of the governor’s housing agenda, municipalities would be required to rezone areas within half a mile of MTA rail stations to allow between 15 and 50 homes per acre.

The governor’s proposals continue a $25 billion, five-year housing program begun last year that aims to create or preserve 100,000 affordable homes.

This year’s executive budget includes tax incentives and some funding for the governor’s latest housing plans, but more will likely be needed. The budget calls for a $250 million infrastructure support fund and a $20 million planning fund to help localities meet their housing targets. Another $40 million would be dedicated to requiring lead inspections in rental properties.

“This is really thinking about a growth strategy,” said Rachel Fee, executive director of the New York Housing Conference. “This would really move the dial on housing supply in New York.”

421a extension, but no replacement

Since 421a expired last June, developers have voiced concerns about their ability to meet a construction deadline to secure the property tax break. To get it, projects must wrap up by June 15, 2026.

Hochul’s budget would push the deadline back four years. Joy Construction’s Eli Weiss said the change will relieve developers’ anxiety, given rising interest rates and construction costs and lenders’ reluctance to finance projects that don’t pencil out without the tax break.

“A lot of people vested” — got footings in the ground by June 15 to keep projects eligible for the tax break — “and then interest rates went bananas,” he said. “This will allow someone to say hey, maybe I wait a year [for rates to fall] rather than not building the project at all.”

Weiss called the extension a “happy medium” between two choices facing lawmakers: replacing 421a and doing nothing. Hochul has said she is committed to working with the legislature on a new program for New York City.

The budget does include a program dubbed “421p” that would allow municipalities outside the city to designate areas where multifamily projects with 20 percent of affordable units, at up to 80 percent area median income, or 25 percent at 100 percent of AMI, could qualify for a nearly 30-year tax exemption.

Other tax incentives

The plan includes a new 19-year tax incentive for office-to-residential conversions on projects that set aside at least 20 percent of units as affordable, of which at least 5 percent must be dedicated to families making no more than 40 percent of the area median income. The value of the tax break would be greater in Manhattan projects south of 96th Street.

Hochul proposes a replacement for the expired tax incentive J-51, an abatement and exemption program for rehabilitating multifamily buildings and for commercial-to-resi conversions. It also creates an incentive program for localities that permit accessory dwelling units.

Lifting NYC’s density cap

Some measures would grant more authority to the city. One, which closely mirrors a bill sponsored by Sen. Brian Kavanagh and Assembly member Harvey Epstein, would create a path for the city to legalize existing basement apartments.

Another would lift a state-imposed cap on the city’s residential floor-area ratio, paving the way for the city to allow residential construction with FAR higher than 12. The budget also would change the state’s multiple dwelling law to make it easier to convert office buildings constructed prior to 1990 into residential properties.

Gas ban in new buildings

The governor included a measure to ban the use of fossil fuels in new construction statewide. It would apply to buildings with fewer than four stories starting in 2025, and to larger buildings in 2028. New York City already has a similar law that kicks in next year.

What was left out

The landlord group Community Housing Improvement Program applauded the budget plan, but urged Hochul and the legislature to support its proposal to allow one-time rent resets in vacant, rent-stabilized apartments.

“These apartments need significant renovations, but due to economic conditions and onerous regulations it is financially infeasible to make necessary upgrades,” Jay Martin, executive director of CHIP, said in a statement.

Tenant advocates, meanwhile, criticized the governor’s omission of good cause eviction and a state-based voucher program, the latter of which was advanced Tuesday by the Senate Committee on Housing, Construction and Community Development.

Hochul’s housing plan would reduce localities’ growth targets below 3 percent if some of the new housing were affordable and requires affordability in builder’s remedy projects. But that does not satisfy Housing Justice for All’s Cea Weaver, who said allowing developers to override local zoning in noncompliant towns would “exacerbate gentrification and inequality while doing nothing to keep New Yorkers housed or help them afford the rent today.”

“Governor Hochul’s plan prioritizes deregulation and luxury housing production,” she said in a statement. “It is for real estate moguls, not working families.”