The leaders of the New York State Senate and Assembly didn't include some of the most impactful policies on the table to spur new housing development in their initial budget proposals released this week.

Lawmakers and Gov. Kathy Hochul are at odds over several pieces of Hochul’s signature New York Housing Compact, including the replacement of the expired 421-a tax abatement, zoning flexibility to meet housing production goals and legalizing basement apartments. The state budget is due April 1, giving Hochul and the legislature just two weeks to come to a deal.

The budget proposals from both houses of the legislature drew ire from real estate industry groups, which accused lawmakers of ignoring the housing crisis.

“The legislature’s big ideas are to spend hundreds of millions of dollars on ‘planning’ for housing outside New York City and a new program for limited-equity co-ops rather than support the governor’s proposals that would actually directly spur meaningful rental housing production,” Real Estate Board of New York President Jim Whelan said in a statement to The Real Deal.

Earlier this year, Hochul proposed replacing the 421-a abatement — a tax break given to developers who agree to set aside a certain percentage of units in multifamily developments as affordable housing that expired last year — with a new, four-year program.

Projects that secured permits must finish construction by 2026 to make use of the program, but because of developers’ difficulty lining up financing in the current interest rate environment, the state could lose out on as many as 32,000 new units, REBNY estimates.

Hochul’s proposed extension would allow developers who have not yet broken ground on developments approved for the abatement until June 2030 to finish construction. But lawmakers excluded it from their own budget proposals, instead offering to issue the tax break on a case-by-case basis.

Lawmakers rejected Hochul’s proposals to increase housing density near transit hubs and to raise New York City’s floor area ratio cap, replace the expired J-51 tax break replacement and potentially legalize basement apartments, although some of those ideas could return in a final budget.

The blanket housing growth targets set by Hochul were also unpopular with the state legislature. Hochul previously asked for 3% growth in housing units over three years for downstate municipalities and 1% for those upstate, with the warning that locales failing to meet the target would see the state override zoning restrictions to allow development.

The legislature proposals didn't include the penalty, instead pitching $500M in incentives to municipalities to meet housing goals, which would receive an initial payment for sending housing growth plans to the state and more funds if they meet the 1% and 3% targets.

“I think the conflict was over telling a municipality how they should act,” Manhattan Assembly Member Harvey Epstein told CityLimits. “Not the targets, but what the penalties are related to not meeting those targets.”

Legislators didn't explicitly include funds for Good Cause evictions, but wrote language indicating more tenant protections could be introduced at a later date. They also added $250M in funding to create a state-based housing voucher program, in addition to $385M proposed by the Assembly to help tenants pay overdue rent.

While tenant advocates and real estate industry groups both applauded the funding for housing vouchers, both believe there is more to be done — with advocates hoping to see a more serious commitment to Good Cause and landlord groups like the Community Housing Improvement Program hoping for funding to help rent-stabilized owners make upgrades that would allow them to put warehoused units back on the rental market.

“The resolutions from the State Legislature fall short in addressing the severe lack of affordable housing in New York State,” CHIP Executive Director Jay Martin said in a statement. “We urge lawmakers to work with Gov. Hochul to advance bills that will create the homes New Yorkers need.”