The 485x is a newly enacted tax credit recently unveiled in Governor Hochul’s FY 2025 Budget. This tax credit, also referred to as the “Affordable Neighborhoods for New Yorkers” program, replaces the 421-a tax incentive program which was created in 1971 to provide a partial real estate tax exemption for newly constructed housing. 421-a required that developers provide a certain percentage of affordable units to middle or low-income tenants in exchange for a 35-year tax credit. Over the years, the 421-a has been periodically suspended, reactivated, restructured, and has now reached its final expiration date. Like its predecessor, the 485x offers developers a long-term tax credit in exchange for the development of a percentage of affordable units; in addition, it seeks to secure fair wages for construction workers at projects benefiting from the program.
Both programs’ goals may be the same but the terms are different. The new program provides an up to 40-year exemption on taxes, an increase from the 35 years offered by the 421-a program. Additionally, the legislature gives the 485x a longer life than the previous initiative, setting it to expire by June 15, 2034. Provisions for the 485x demand a larger proportion of housing project units to be designated as affordable housing, which makes requirements for affordability more stringent, and also includes mandatory sustainability requirements.
For all projects over one hundred units, construction crew wages must start at a base wage rate of $40 an hour. For projects of more than 150 units, depending on location, the program demands construction workers’ total compensation range be the lesser of $63 to $72.45 per hour, or 60 to 65% of the prevailing wage. To keep up with inflation, these rates will increase 2.5% every year. Projects with more than one hundred units must reserve 25% of the units for tenants earning a weighted average of no more than 80% of the area median income, going down to 60% for projects with 150 units or more, depending on their location. If a developer takes it down a notch, buildings developed with 6 to 99 units will have to provide 20% percent of the units for tenants earning 80% percent of the area median income. Condominium and co-op projects are also eligible if they are located outside Manhattan and are valued at an average assessed value of $89 per square foot or less. Developers currently approved under the 421a program have been given an extended deadline and have until 2031 to complete their projects.
The 421a was unpopular and left to languish because developers complained that it was too stringent, while tenant advocates and unions grumbled that it did not do enough. Will the 485x fare better? It’s hard to say. Developers will have to dig deep and make definitive calculations to decide if the 485x credit will prove profitable with its added labor costs and rental income limitations. This is especially applicable to larger developments as the 485x’s tiered scale raises the required base pay per unit built.
Despite these constraints, brokers are reporting that the new law has awakened interest in qualified properties, and values have responded, showing a slow rise. In today’s troubled financing landscape, developers need an incentive to plunge into new projects. The 485x may provide that push. Lawmakers are hoping that the creation of the 485x will serve the dual purpose of wooing developers back into construction mode and helping the city achieve a fair balance between wages and affordability.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
