The 485-x and 421-a tax incentive programs are property tax exemptions designed to make the development of new rental housing financially feasible in New York City by offsetting high construction and operating costs. This page covers CBC’s work on the design of tax incentive successors, the impact of wage requirements on housing production, the role of property tax reform, strategies for increasing as-of-right zoning capacity, and the feasibility of office-to-residential conversions.
This page was created with AICBC Insights uses AI to group, analyze and present data and recommendations from CBC's publications. Always reference the cited sources to verify important details..
The State should enact a 421-a successor because tax incentives are necessary to make affordable rental housing development in New York City financially feasible.
The State should enact housing production and density improvements, such as raising the FAR cap, supporting office-to-residential conversions, and legalizing basement apartments, to boost production and affordability.
The State should reject proposals that disincentivize production to avoid adding counterproductive burdens to housing production and affordability.
The State should extend the construction deadline for existing 421-a projects to ensure that units in the pipeline are built.
The enacted budget should include a well-crafted successor to 421-a, which is critical for New York City’s production of affordable rental housing.
Key Data
As of September 2025, the 485-x tax incentive includes wage floor requirements for buildings with 100 or more units, leading developers to build 99-unit buildings to avoid these requirements.
Ending the 421-a program without a successor would provide less than $100 million annually over the next seven years, and $1.8 billion will not be freed up for decades, according to a May 2022 statement.
In New York City, property taxes account for 30 percent of rental income, compared to 13 percent elsewhere in the country, making tax exemptions like 421-a critical for project feasibility, as of March 2022.
Analysis from March 2022 shows that under the proposed ANNY program, buildings with 30 or more units in moderate- and middle-income neighborhoods would not be financially viable because rents are insufficient to subsidize the required share of affordable units.
New York City's high construction costs, driven by labor expenses, regulatory requirements, and complex approval processes, significantly hinder the production of necessary housing. Specifically, wage requirements tied to programs like the 485-x tax incentive can inadvertently discourage development by making projects financially infeasible or incentivizing developers to build smaller buildings to avoid regulatory thresholds.
Recommendations related to 485-x/421-a Tax Incentive
The City and State should better balance the trade-off between prevailing wage requirements and housing production to avoid rendering new residential development financially infeasible.
Policymakers should reconsider onerous wage requirements on affordable housing projects, as they can disincentivize the construction of necessary housing units.
Key Data
23%
— Affordable housing projects with prevailing wage requirements cost 23% more to build in New York City.
20% to 30%
— Projects that use at least some nonunion labor are 20% to 30% less expensive than union-built projects.
$82,000
— A two-year discretionary review increases hard and soft costs by as much as $82,000 per unit due to inflation and additional professional services fees.
7%
— The Scaffold Law increases total development costs by at least 7%.
New York State should enact a successor to the 421-a tax incentive program to make affordable rental housing development in New York City financially feasible, while also implementing density improvements and rejecting policies that disincentivize production. The State has also proposed an initial $250 million appropriation, expected to grow to $500 million, to support the development of 15,000 housing units on State-owned property.
Recommendations related to 485-x/421-a Tax Incentive
The State should enact a 421-a successor because tax incentives are necessary to make affordable rental housing development in New York City financially feasible.
The State should enact housing production and density improvements, such as raising the FAR cap, supporting office-to-residential conversions, and legalizing basement apartments, to boost production and affordability.
The State should reject proposals that disincentivize production to avoid adding counterproductive burdens to housing production and affordability.
Key Data
$250 million
— Initial appropriation to support a goal of developing 15,000 housing units on State-owned property.
$500 million
— Expected future appropriations to support the goal of developing 15,000 housing units on State-owned property.
15,000
— Number of housing units the State aims to develop on State-owned property.
20 percent
— Minimum share of units required to be affordable at 80 percent of area median income in office-to-residential conversions.
5 percent
— Minimum share of units required to be affordable at 40 percent of area median income in office-to-residential conversions.
The enacted New York State Fiscal Year 2024 budget fails to address the state's housing production and affordability crises by neglecting to implement necessary reforms. To combat these growing challenges, state leaders should adopt flexible housing strategies, including the extension and enactment of a successor to the 421-a tax incentive.
Recommendations related to 485-x/421-a Tax Incentive
State leaders should enact proven, flexible strategies, like those proposed by the Governor, to streamline environmental review, eliminate the floor area ratio cap, promote transit-oriented development, legalize accessory dwelling units and basement apartments, and extend and enact a successor to 421-a.
New York State's proposed housing package aims to double housing production to 800,000 units over the next decade by removing regulatory barriers and providing targeted incentives. This strategy includes extending deadlines for existing tax-incentivized projects and developing a successor to the expired 421-a tax incentive to ensure rental housing development remains financially feasible.
Recommendations related to 485-x/421-a Tax Incentive
The state should extend the construction completion deadline for active 421-a projects to maximize production potential.
Policymakers must implement a tax incentive successor to 421-a to make rental housing development financially feasible given high construction costs and property taxes.
Regulatory relief and potential incentives are necessary to facilitate office-to-residential conversions into mixed-income rentals.
Key Data
800,000
— New units of housing intended to be created over the next decade under the proposed package of bills.
Extending the construction deadline for existing 421-a projects is a necessary step to ensure that housing units currently in the pipeline are completed. Furthermore, creating a well-crafted successor to the 421-a program is essential for maintaining the production of affordable rental housing in New York City.
Recommendations related to 485-x/421-a Tax Incentive
The State should extend the construction deadline for existing 421-a projects to ensure that units in the pipeline are built.
The enacted budget should include a well-crafted successor to 421-a, which is critical for New York City’s production of affordable rental housing.
The expiration of the 421-a housing production tax credit program necessitates the implementation of a well-designed replacement to effectively stimulate the development of affordable and market-rate rental housing. Such a policy measure is anticipated to be a key component of the upcoming housing agenda to address the statewide production deficit.
Recommendations related to 485-x/421-a Tax Incentive
A well-designed replacement for the now-expired 421-a would help spur affordable and market rate rental housing production.
New York City requires a successor to the 421-a tax incentive program to prevent a decline in the construction of both affordable and market-rate rental housing. Ending the program without a replacement would fail to generate significant revenue, providing less than $100 million annually over seven years while locking away $1.8 billion in potential funding for decades.
Recommendations related to 485-x/421-a Tax Incentive
State lawmakers should support a successor to the 421-a program to ensure the city's scarce and expensive rental housing does not grow even scarcer and more expensive.
The proposed 485-w replacement program should be modified to incentivize more production in moderate-to-middle-income neighborhoods.
The proposed 485-w replacement program should require greater transparency and public reporting.
The proposed 485-w replacement program should harmonize with existing State and City affordable housing programs.
State and City officials should take action to reduce construction and operating costs, increase zoning capacity, and reform the property tax.
Key Data
$100 million
— The maximum amount of annual revenue that would be generated if the 421-a program were ended now, over the next seven years.
$1.8 billion
— The amount of funding that would not be freed up for decades to come if the 421-a program were ended without a successor.
New York City requires a successor to the 421-a tax exemption to boost housing production, as ending the program will not immediately free up the $1.8 billion in tax revenue often cited by critics. Instead, the city must implement a broader policy package that includes reducing construction costs, increasing as-of-right zoning capacity, and reforming the property tax system to effectively address housing affordability.
Recommendations related to 485-x/421-a Tax Incentive
New York City needs to produce more housing of every kind, including both affordable and market-rate rental units, by implementing a successor to 421-a.
A broader package of policies and programs is needed to boost housing production, which should include reducing construction and operating costs.
The city should focus on increasing as-of-right zoning capacity to improve housing affordability.
The city should prioritize reforming the property tax as part of a comprehensive housing strategy.
Key Data
$123 million
— Estimated amount 421-a properties will pay in 'mini tax' property taxes for fiscal year 2023.
$1.7 billion
— Value of 421-a exemptions expected for 60,149 tax lots in the upcoming fiscal year.
$1.74 billion
— Total exemption value for 421-a properties reported in the fiscal year 2023 tentative assessment roll.
$1.65 billion
— Foregone tax revenue in fiscal year 2029.
$451 million
— Average 'available' tax revenue annually from fiscal year 2030 to fiscal year 2036.
$700 million
— Value of exemptions still in force in fiscal year 2043.
The 421-a property tax exemption is essential for making rental housing development financially feasible in New York City, as high construction and operating costs otherwise render most projects unviable. Replacing this program with the proposed Affordable Neighborhoods for New Yorkers (ANNY) program requires modifications to better align affordability requirements with varying market conditions and ensure the continued production of both market-rate and affordable units.
Recommendations related to 485-x/421-a Tax Incentive
State lawmakers should better tailor affordability options to reflect different market conditions by creating a new option for mid-rise projects outside the Prime Development Area or offering Option B to all projects outside the Prime Development Area.
The City should track and evaluate program usage to inform successor programs by creating a database of project recipients and reporting on overall residential development trends.
State lawmakers should work with the City to align the incentive with other housing programs, such as modifying ANNY and the Mandatory Inclusionary Housing program to be compatible and clarifying rules for projects receiving bond financing.
Key Data
75%
— The increase in rents required to generate a reasonable rate of return without the 421-a tax exemption.
50%
— The amount by which the cost to operate a multifamily building in New York City exceeds the national average.
30%
— New York City property taxes as a percentage of rental income, compared to 13 percent elsewhere in the country.
5%
— The minimum yield-on-cost return necessary for a development to proceed.
20%
— The share of units required to be set aside at 90 percent of Area Median Income under ANNY Option B.
60 to 65 percent
— The percentage of gross rental income spent on expenses for fully taxed rental buildings in New York City.
New York should replace the expiring 421-a tax incentive with a new program that maintains as-of-right incentives while simplifying affordability requirements to ensure rental housing development remains feasible. This replacement must prioritize transparency, public reporting, and harmonization with other affordable housing programs to effectively address the state's housing production needs.
Recommendations related to 485-x/421-a Tax Incentive
The State should enact a cost-effective 421-a replacement that supports affordable and rental housing development.
The City and State should harmonize any 421-a replacement with other affordable housing programs and reduce bureaucratic hoops to development.
The 421-a replacement program should come with greater transparency and public reporting of data to support a robust assessment of the program’s impact and effectiveness.
The State should maintain that an as-of-right property tax exemption is necessary to make development of rental housing feasible in New York City.
The next New York City Comptroller will play a critical role not only in holding the next Administration and agencies accountable, investing and managing five pension funds with $248 billion in assets, and partnering in $13 billion City debt issuance, but also in spotlighting and promoting New York City’s fiscal…
New York City's housing production has failed to keep pace with job and population growth, largely due to restrictive zoning, high construction costs, and an inequitable property tax system. Reforming these policies, including the 421-a tax incentive program, is essential to creating a more competitive and affordable housing market.
Recommendations related to 485-x/421-a Tax Incentive
New York City should have a citywide housing plan that quantifies the city’s current and future housing needs at all market segments, identifies the gap between these needs and existing zoning capacity, and sets ambitious but achievable citywide production goals.
The City should update the zoning code to increase opportunities for as-of-right development throughout the city to avoid the contentious, expensive, and time-consuming neighborhood-by-neighborhood rezoning strategy.
State lawmakers should pass reforms to make the City’s property tax system more equitable and efficient, which would allow lawmakers to reform tax incentive programs like 421-a to make them more efficient and better targeted.
The City should continue to revise outdated or unique building code requirements that increase costs and adopt strategies to encourage construction industry innovation.
State lawmakers could require municipalities to zone for both more housing and a wider variety of housing, including accessory dwelling units and multifamily residences, particularly in areas near commuter rail stations.
State lawmakers should amend laws that increase the cost to build new housing, such as the Scaffold Law, the cap on floor area ratio, and the Multiple Dwelling Law.
Key Data
$1.6 billion
— Cost of 421-a tax exemptions in fiscal year 2019.
71,095
— Number of 421-a tax exemptions in fiscal year 2019.
0.19
— Housing units added for every net new job created in New York City between 2010 and 2018.
7 percent
— Increase in total development costs attributed to New York's unique construction liability laws.
94,000
— New rental apartments built in New York City between 2010 and 2018.
40 percent
— Fewer housing units per capita issued by New York City compared to San Francisco.
The proposed Affordable New York Housing Program, intended to replace the expired 421-a tax incentive, extends the full tax exemption period for new developments from 25 to 35 years. This long-term exemption is criticized for potentially sacrificing decades of future city revenue without an accompanying fiscal impact estimate.
Recommendations related to 485-x/421-a Tax Incentive
A replacement for the expired 421-a program is needed to spur construction of mixed-income rental housing in New York City.
It is generally unwise to offer a tax exemption for such a long period of time, as it sacrifices decades of future city revenue.
Key Data
25 to 35 years
— The proposed Affordable New York Housing Program increases the full tax exemption on new development from 25 to 35 years.
The 2015 New York State end-of-session agreement included the continuation of the 421a tax incentive and rent regulations, which are described as imperfect and costly measures for addressing housing affordability. While the agreement avoided certain tax breaks and pension rollbacks, it introduced new spending commitments, including a $1.3 billion property tax rebate program and a $250 million increase in aid to nonpublic schools.
In 2013, the 421-a program contributed to the addition of nearly 6,000 rent-regulated units, helping to stabilize the total number of regulated units in New York City. This addition occurred alongside a loss of 4,801 units due to vacancy and high-rent decontrol during the same period.
Key Data
6,000
— Number of rent-regulated units added through the 421-a program in 2013.
4,801
— Number of rent-regulated units lost due to vacancy and high-rent decontrol in 2013.
No results for your current filters. Manually edit your filters, or
clear the filters.
Share Feedback
Give a star rating, write a comment of at least 10 words, or both.
