New Property Tax Exemption Programs Added to Facilitate Affordable Housing Outside NYC

On April 20, 2024, as part of the annual Budget Bill, New York State added new Real Property Tax Law (RPTL) Sections EE, Section 2 and GG, Section 2, whose intent is to create and preserve affordable housing outside New York City.  To that end, two new tax incentive programs have been added.

The new RPTL tax exemption programs, 421-p and 421-pp, apply to the development of affordable housing outside of NYC on vacant or underutilized land, or to redevelop underutilized buildings. New RPTL Section 421-p permits municipalities to grant exemptions for newly constructed or converted partially income-restricted rental multiple dwellings consisting of 10 or more units, if the property is located in an area of the municipality designated by local law. A school district may also choose to exempt such a property from its taxation and special ad valorem levies.

RPTL Section 421-pp creates similar authority for fully income-restricted properties. For partially income-restricted rental multiple dwellings to qualify for this new exemption, all of the units must be rented for residential purposes, and 25 percent of the units must be affordable to and restricted to occupancy by individuals or families whose household income does not exceed an average of 60 percent of the area median income (AMI) capped at maximum incomes of no more than 80 percent of the AMI. Over time, the maximum income band can rise to 100 percent of the AMI.

A multiple-unit rental dwelling that avails itself of the new exemption will be wholly exempt from taxation during construction, up to a maximum period of three years. After construction, the rental multiple dwelling will then be exempt for a period of 25 years. As part of this, the exemption will begin at 96 percent, decreasing on an annual basis by 4 percent per year during the 25-year exemption term. Real property taxes to be paid during the exemption period must be an amount at least equal to the real property taxes paid on such land and any improvements during the tax year preceding the commencement of such exemption. Under RPTL Section 421-pp for fully affordable buildings, the exemption will be extended to 30 years and capped at 10 percent of shelter rent. 

These new programs require that any new construction take place on vacant, predominantly vacant, or underutilized land, land with a non-conforming use, or land containing one or more substandard or structurally unsound dwellings, or a dwelling that has been certified as unsanitary by the local health agency.

A mixed-use, newly constructed, or converted property may avail itself of these exemptions, provided it meets the program requirements and the square footage of the portion used as a rental multiple dwelling represents at least 50 percent of the square footage of the entire property. Additionally, the statute requires that all building service employees employed at the property must receive the applicable prevailing wage for the duration of the benefit period. However, the prevailing wage requirements won't be applicable to buildings containing fewer than 30 dwelling units, or affordable buildings financed with substantial governmental assistance.

NY State Bills S8306C/A880C, Part EE, Section 2, adding new Real Property Tax Law Section 421-pp (4/20/24) and Part GG Section 2 adding new RPTL Section 421-p [4-page document]