State legislators are updating New York's new rent regulation laws to make sure developers who build affordable housing with a state tax break can still include market-rate units in those projects.

The original version of the legislation would have affected developers who build using Affordable New York, the city policy formerly known as 421a, Crain’s New York Business reports.

That program provides a tax break for developers who set aside 25% to 30% of a project for affordable housing. The rest of the units in a building with the tax break are allowed to charge market rents for the non-stabilized portion of the building, as long as those rents are above the city’s luxury threshold.

However, the newly passed law, the Housing Stability and Tenant Protection Act of 2019, removes that threshold, which would have meant those market-rate units would have become regulated — an unplanned side effect of the new laws.

A last-minute change to the legislation means developers using Affordable New York can still increase rents on market-rate units. The updated version has passed the legislature, and sources said it is now awaiting signature from the governor.

"It is very typical of a law as complex as rent regulations to have a subsequent cleanup bill," state Sen. Brian Kavanagh, who drafted the change, told Crain’s earlier this week. "By doing away with the deregulation threshold, there were some unintended consequences on other laws and programs that rely on or reference that threshold."

He also told Crain's legislators had “a lot of conversations” with the real estate industry over the new laws.

“We didn't agree with their position, but they were not shut out from the conversation," he said. "I don't believe anyone flagged this issue before the bill was printed, but this is a complicated topic, and I'm not blaming anyone."

The new laws, aimed at strengthening tenant protections amid a housing affordability crisis in the city, have ignited a wave of criticism from the real estate industry.

While tenant advocates say the historic laws are a win for the thousands of rent-burdened households in the city, some developers and brokers say they will make the city more expensive for everyone.

Slate Property Group principal David Schwartz said that though the legislature never intended to change the way Affordable New York works, the update is welcome.

“It would have been really bad — it would have really brought new projects to a halt until this was legislation was fixed,” he said.

The Real Estate Board of New York railed against the laws from the start, saying they will only worsen the city’s affordability crisis.

“We appreciate that the governor and state legislature made these changes to the rent regulation laws to ensure that New York City will be able to continue to produce thousands of much needed rental units,” REBNY President John Banks said in a statement to Bisnow. “The city’s housing crisis requires the production of many more below-market and market rate rental units as well as rent subsidies for low and very-low-income families and individuals to help them find suitable housing."