Hochul's Housing Agenda Delivers On Real Estate Industry's Wishlist
In her first address as New York state’s elected leader Tuesday, Gov. Kathy Hochul set ambitious new targets for housing development across the state, proposed a replacement for the popular-with-developers 421-a tax credit and said she would push to allow for higher allowable density and less restrictive zoning.
Her State of the State speech checked many of the items industry groups and development leaders had placed on their 2023 agendas, chiefly a focus on housing focused almost entirely on increasing development.
The governor pledged to see 800,000 new homes delivered across the state through a range of measures dubbed the New York Housing Compact, including forcing housing production targets on municipalities, increasing density near transit hubs and legalizing basement apartments.
“Through the creation of a true statewide housing policy, the governor’s proposals will allow the state’s 5-year, 100,000-unit affordable housing plan to realize its full potential,” New York State Association for Affordable Housing President and CEO Jolie Milstein said in a statement.
Coupled with Mayor Eric Adams' recently declared "moonshot" goal of 500,000 new housing units in New York City, the messages coming out of the two most powerful people in the state are aligned with industry priorities.
"This is the first time in years we’ve had a mayor and governor who are working together and aligned on their priorities with respect to housing, and that may be the most important piece of the puzzle because several key issues will need support at the city and state levels to be successful," said Rafael Cestero, the CEO and president of the nonprofit Community Preservation Corp.
But some within the industry expressed concern over how Hochul’s housing agenda will go down with local leaders, who successfully persuaded Hochul to back off similar proposals she made last year.
Her 2023 plan will require municipalities to meet a housing production target. Upstate municipalities will have to grow their housing stock by 1% every three years and downstate by 3%. If they fail, she warned, the state may step in.
“When communities haven’t made good-faith efforts to grow when proposed housing projects are languishing for no legitimate reason, the state will implement a new fast-track approval process,” said Hochul during her address, where she also pledged funding for infrastructure to accommodate new housing, like schools and sewers, in addition to cutting red tape for developers.
Plans to reform the state’s land use policies drew praise from industry insiders who spoke to Bisnow this week, but wrangling municipal legislators to meet housing goals could be contentious, Rosenberg & Estis member attorney Daniel Bernstein said.
"What the governor is proposing is that if there may be some circumstances where approvals, if they didn't meet a certain minimum amount of housing created — or perhaps affordable housing created, it wasn't entirely clear — that that would be somehow a situation that the state would look to rectify,” Bernstein said. "The issue is, politically, is that viable?"
Slate Property Group Managing Director John Valladares told Bisnow that Hochul’s proposed reforms to floor area ratio caps could improve housing density, but shared Bernstein’s concerns that local politics could complicate plans for developers. Hochul's State of the State book said she will propose an amendment removing New York City's "antiquated" density cap of 12 FAR for residential housing.
“It's incredibly important that local leaders who care about thriving communities urgently consider reforms and new policies that look at development holistically,” Valladares said. “That includes making sure that bureaucracy around land use reform is made more efficient, especially at the pre-certification stage for projects that build new affordable housing.”
Nonetheless, of the more than a dozen CRE professionals surveyed by Bisnow prior to Hochul’s State of the State speech, more than half mentioned housing policy as an area in desperate need of attention.
The need to replace the 421-a subsidy was also a common refrain — Hochul said she would work with the legislature on a new policy — and several also mentioned a desire to see tax incentives introduced for office-to-residential conversions.
While the governor didn't propose a new incentive, her policy book said she would introduce legislation to "expand the universe" of buildings that can be legally converted from commercial uses to housing to include 120M SF of newly eligible buildings.
Real estate private equity firm Northwind Group is actively looking for opportunities to invest in office-to-residential conversions, Ran Eliasaf, founder and managing partner, told Bisnow.
“We think it's going to be a significant part of our business in 2023, and I think a lot of developers are going to enter into those types of projects,” Eliasaf said, adding that a lack of incentive wouldn’t stop Northwind but that he believes tax incentives for conversions is just as important as reinstating or replacing 421-a.
Reinvigorating downtrodden areas by mixing up building uses could be key for neighborhood economies. Fisher Brothers partner Winston Fisher voiced excitement about ongoing developments like Grand Central Madison’s planned 2023 opening, bringing Long Island Rail Road commuters directly into Midtown. Meanwhile, planned investments in the Interborough Express, expanding EV charging facilities and using federal dollars to fund state infrastructure will help CRE across the state, New York Building Congress President and CEO Carlo Scissura said.
But neither conversions nor tax abatements for new developments alone will fill NYC’s housing gap, executives said. More needs to be done to help landlords repair and maintain apartments, especially for rent-stabilized landlords, Time Equities CEO and President Francis Greenburger said.
“Because of rent reform, New York has embraced a system that poses too many challenges for real estate investors,” he said. “For instance, a lot of repair work needs to be done throughout the city right now, and owners are not incentivized to fix apartments because they are given no compensation to do so. This is an example of a bad policy that makes the city an unattractive place to invest.”
Help reaching compliance with Local Law 97 and in cultivating proactive approaches to reducing carbon emissions is among other affordability measures that CRE execs told Bisnow they hope to hear more about in the coming months.
Hochul’s announcement may have gone some way to meeting expectations: She announced plans to require all new construction to have no on-site fossil fuel combustion — by 2025 for smaller buildings and 2028 for larger properties — in addition to banning the sales of new fossil fuel heating equipment starting as soon as 2030.
"Reducing real estate's impact on climate change should and will be a major focus this year,” Fairstead CEO Jeffrey Goldberg said. “We have to take action to sustainably retrofit the buildings we already have to meaningfully reduce our emissions — especially in affordable housing, where profit margins are thin — and our government partners at all levels are making important strides to get us there."
Still, nonprofit groups say some glaring omissions stand out. In an emailed statement, nonprofit organization the Supportive Housing Network of New York said that Hochul’s plan lacked details about funding desperately needed supportive housing in the state. Tenants rights group Housing Justice For All, meanwhile, pointed out that Hochul’s State of the State left tenant protections completely out of the picture — a talking point picked up by influential progressive former City Council Member Yuh-Line Niou.
“Building new housing without protections for tenants and access to housing for Homeless NYers is a recipe for disaster,” Niou tweeted. “If we don’t pair new construction with policies to mitigate displacement, we’re only guaranteeing that more families will get pushed out and lose their homes.”