Developers are moving closer to receiving new tax breaks for multifamily housing and office-to-residential conversions thanks to new guidance on how to apply for them. The Department of Housing Preservation and Development (HPD) has proposed rules for two critical programs: 485x, which replaced 421a, and 467m, which incentivizes office conversions. These rules must be finalized before applications can be processed.
These programs, approved by the state in April, leave little room for changes by the city, but HPD’s guidance remains crucial for developers whose projects rely on these tax breaks.
One key aspect of the proposed 485x rules is the requirement that 25% of contract costs go to minority- and women-owned businesses (MWBE) during project design and construction. However, the process remains unclear, especially for projects started after 421a expired but before 485x was introduced.
Real estate attorneys note there’s still ambiguity about how developers can meet this threshold. HPD will have significant discretion in determining whether developers made a “reasonable effort,” which could lead to issues down the line if projects fall short after completion.
In terms of affordability, the city’s proposed rules for both 485x and 467m reduce rents for affordable units by targeting households earning 77% of the area median income (AMI), rather than 80%. This change aligns with other HPD programs and aims to help more lower-income families qualify for housing, though it could slightly impact project finances.
Developers still await clarity on penalties for failing to meet affordability and wage requirements under 485x. HPD has yet to release a penalty schedule, but state law indicates penalties could be steep, potentially up to 1,000% of the program benefits.
