The little-known upstate version of 421-a is … also unpopular with the Legislature

The fight over the controversial 421-a developer tax break in New York City has so far played a major role in the fate of Gov. Kathy Hochul’s housing. The governor says a replacement is needed to spur 400,000 units of housing over the next decade, while the Legislature has shown it’s not on their agenda.

But in her budget proposal, Hochul quietly included a very similar tax break dubbed 421-p, that would apply everywhere except New York City. And just as quietly, the Legislature shut down the idea in their budget rebuttals.

Under Hochul’s proposed 421-p tax break, cities, towns and villages other than New York City could designate areas where development projects, including mixed-use developments, could qualify for nearly 30 years of tax exemptions. The projects would need to either have 20% of units set aside for renters making up to 80% of the area median income, or 25% at 100% of the area median income. Under the tax break, developers would face no property taxes during construction for up to three years, and benefit from another 25 years of gradually waning, but generous tax breaks after completion. 

Hochul’s proposed 421-p program went the way of large chunks of her housing agenda when the Legislature weighed in, with lawmakers rejecting most or all of the incentive program. In the state Senate, legislators kept the name but changed what projects it could apply to. Rather than new developments, the Senate version would permit tax breaks for commercial conversions to real estate outside of New York City. It had similar affordability requirements.

The Assembly, meanwhile, proposed nixing the idea completely. 

Overall, the 421-p incentive program represented a relatively small and largely overlooked portion of Hochul’s housing plan, with most attention paid to the far more consequential 421-a replacement and potential to override local zoning laws if localities don’t hit growth targets. The incentive for new housing developments would likely also have far less impact without the growth requirements that the Legislature removed, evidenced by municipalities like Hempstead on Long Island that have placed a moratorium on new development in certain neighborhoods and otherwise shown resistance to building more housing.

At the same time, pro-development advocates have long argued that such tax incentives are crucial for affordable housing production. The proposed 421-p program could expand the tax break that New York City has long had to municipalities around the state to help ensure that new housing benefits low-income residents. But as the fight over 421-a shows, fights over tax breaks are highly contentious even in places that are generally open to new development. For Hochul, the fight may ultimately prove too much this year as she also seeks highly controversial changes to local zoning that have faced significant public backlash.