NYC Land Use Bulletin- Major Changes Enacted to 421-a Tax Exemption Program


NYC Capalino Business Strategy

On June 25, 2015, the New York State Legislature extended and enacted significant changes to the 421-a partial tax exemption program, which affects residential development throughout New York City. Capalino is monitoring the changing regulatory and programmatic environment to be able to provide its clients with deep expertise and strategic advice in conjunction with site development and project planning.

In addition to changes to 421-a and how they are implemented, we are closely following the Department of City Planning’s proposed text amendments for Housing Quality and Affordability, area-specific zoning studies, and upcoming requirements for mandatory inclusionary housing, as well as programmatic changes to housing programs sponsored by HPD and others.

Below is what you need to know about 421-a, including current 421-a rules and major changes that have been implemented. For further information, please contact Richard Barth, Senior Advisor for Land Use and Housing Strategies, at, or Claire Altman, Director of Affordable & Supportive Housing Development Services, at

Current 421-a Rules

The legislation enacted by the State legislature and signed by the Governor extends this current program until December 31, 2015. 

The current 421-a program, last amended in 2008, provides a partial tax exemption on residential real estate throughout New York City.  Within the “General Exclusion Area”, which includes Manhattan and certain areas in the other boroughs, the program requires that 20 percent of the units be allocated for low-income housing.

Outside the General Exclusion Area, the program does not mandate any affordable housing requirements.

Click here to see map of Exclusion Areas (PDF)

Projects that commence construction by the end of the year vest their projects under the current program rules. 

Commencement of construction for eligible multiple dwellings is defined as the date upon which “excavation and construction of initial footings and foundations lawfully begins in good faith…”  These new vesting rules apply to the current program now in effect, as well as the modified program that will begin on January 1, 2016.

Importantly, a full building permit is not required to meet the commencement standard.

Major Changes to 421-a (Starting January 1, 2016)

The new program with modifications takes effect on January 1, 2016 and is effective through June 15, 2019

The agreement extends the existing 421-a program for six months until December 31, 2015. It grandfathers in any projects that complete 421-a applications,  obtain required construction permits and commence foundation work before the end of 2015 under the existing program.

Representatives of Building and Construction Trades and real estate industry must reach memorandum of understanding regarding wages for construction workers in order for the program to automatically extend for four years.

The new construction aspects of the legislation would be “suspended” unless the real estate industry and building and construction trades agree, by January 15, 2016, to a memorandum of understanding on wages and benefits for construction workers on buildings over 15 units that receive 421-a benefits.  This agreement could vary by location and building size.

We will continue to monitor these critical negotiations.

Regardless of location, all rental buildings receiving benefits would be subject to new requirements that 25 or 30 percent of the units must be affordable, depending on income levels within the affordable units.

Current rules require that 20 percent of the units be affordable in the General Exclusion Area while no affordable units are required elsewhere. Unlike current rules,  the benefits would not be available to condominiums and co-ops in Manhattan and for these buildings with over 35 units outside Manhattan.

The new rules would allow developers to select among options on the amount and level of affordability. The Affordability Options are below. For reference, Area Median Income (AMI) for a family of four is $84,300.

Affordability Option A – 25 percent affordable requirement

The benefit period would be extended to 35 years, with a 25 percent exemption for years 26-35. Projects would also be eligible to receive tax exempt bonds and tax credits.

Affordability Option B – 30 percent affordable requirement

The benefit period would be 35 years, with a 30 percent exemption in years 26-35.  These projects would be eligible for substantial government assistance.

Affordability Option C – 30 percent affordable requirement; not available in Manhattan South of 96thStreet

The benefit period would be 35 years, with a 30 percent exemption in years 26-35.  These projects would not be eligible for substantial government assistance.

Affordability Option D (Condominium and Co-op Homeownership)

The 421-a benefits would not be available to these buildings with more than 35 units or within Manhattan.   100 percent of the units must have an average assessed value not to exceed $65,000 upon the first assessment following the completion date.  In addition, the unit owner must agree to maintain the unit as their primary residence for no less than five years.  The benefit period would extend for 20 years.

Extended Affordability Program:  In order to encourage the preservation of existing affordable units, existing 80/20 projects are allowed to receive extended benefits. 

In exchange, buildings would be required to preserve for 15 additional years the existing 20 percent affordable units, and add five percent more at 130 percent of AMI.

Buildings with more than 30 units would be required to pay prevailing wages for building service workers.

Certain other rules relating to rent stabilization, affordability, and application dates would apply. Previously, prevailing wage rules applied to buildings over 50 units with certain affordability levels.

Common Access to affordable and market units will be required.   

Buildings receiving 421-a benefits would have to share the same common entrances and common areas as the market rate units, and affordable units  cannot be isolated to a specific floor or area of the building.

Where can I get more information?

These changes are far-reaching with implications for property owners and residential developers throughout the City. Capalino will continue to monitor implementation and interpretation of these changes as well as provide clarity on how they work in conjunction with existing and anticipated changes to the city’s inclusionary housing program.

Please contact our team of experts for more details and further information.


Senior Advisor for Land Use and Housing Strategies

About Richard


Director of Affordable & Supportive Housing Development Services 

About Claire

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