Market-rate condos as an affordable housing tool?

May 21, 2025 — Legislation recently enacted by New York State as part of its budget process directly offers the prospect of preserving several thousand affordable housing units at risk for losing their tenant protections, and indirectly raises the question of why an obvious set of tools aren’t being used to change the day-to-day reality of luxury condominium buildings being developed with zero percent affordable units included.

Affordable Housing Retention Act

In its standalone form, the Affordable Housing Retention Act (AHRA) was introduced by Assemblyman Harvey Epstein, a co-author of 2019’s Housing Stability and Tenant Protection Act (legislation that provided substantial new tenant protections), and by State Senator Cordell Cleare. It was ultimately wrapped into the budget as part of the Education, Labor and Family Assistance (ELFA) part of the budget. The budget was passed by both houses, and then signed by Governor Hochul on May 9.

The principal idea was to figure out a mechanism to solve the problem of affordable rental units that were not created under a “permanent affordability” model and where the end of the affordability regime is nearing. These are buildings with affordable units where income-restricted status or rent-stabilized status was limited to the period during which the building owner was getting a tax incentive or other assistance from New York State or New York City, units that, upon expiration of that period, can be turned into (unaffordable) market-rate units.

The carrot to be used was made available by that part of the 2019 tenant protection legislation that increased the percentage of units required for a co-op or condo conversion from 15 percent — made up of any combination of existing, bona fide tenants and prospective tenants who represented they would occupy the purchased unit as a primary residence once the unit was vacated — to 51 percent of units, made up only of existing, bona fide tenants. 

The trade made by the AHRA was to create permanent affordability for income-restricted tenants and rent-stabilization for non-purchasing tenants under a condo conversion plan, and to allow the landlord to achieve a condo conversion with the pre-2019 (far easier) 15 percent.

The legislation is a pilot: it sunsets after six years.

Epstein was not able to offer an estimate of the number of units covered, but Matthew Dunbar, the chief strategy officer of Habitat NYC and Westchester, a not-for-profit affordable housing developer and housing justice advocacy organization, estimated broadly that perhaps 30,000 units of housing in upwards of 150 buildings would be involved. Estimating that 20 percent of such units would be protected affordable units (the most common formula used during the period), Dunbar said, would yield during the pilot period approximately 6,000 units of housing permanently preserved as affordable.

Condos for low-income rental within a market-rate condo

Most of the apartments in a building would be sold as market-rate condos (with occupied units held either by the sponsor or sold to an investor, subject to the rights — explicitly set forth in the AHRA — of existing non-purchasing tenants to remain with rent-regulated status going forward). The income-restricted units, however, would be turned over, apparently without charge, to a “qualified owner,” which is limited to either a housing development fund company incorporated under Article 11 of the Private Housing Finance Law or a community land trust or other charitable corporation that “has as its primary purpose the ownership, operation, and maintenance of multifamily housing for persons and families of low income.”1

Those income-restricted condo units could themselves become a low-income co-op (if at least 80 percent of the renters of the income-restricted units decided to proceed in that way). Indeed, both Epstein and Dunbar saw the possibility of creating new home ownership opportunities as a key feature of the legislation. The income-restricted units could, however, remain as rentals, and the balance of this article focuses on the sustainability of the portion-of-condos-only-for-low-income rental model (low income is defined as no more than 60 percent of area median income, which, for a family of four in NYC in 2025 is $97,200. (The New York City Department of Housing Preservation & Development (HPD) has a full AMI chart here.)

Operating sustainability

In the normal course, common expenses in a condo are divvied according to the respective common interests of individual condo owners. Thus, owners of equivalent units are billed for equivalent common charges. Especially in a luxury building, those common charges can be quite high. The AHRA intends to get around this problem by taking advantage of a provision in legislation that had already been on the books. This provision of the Real Property Law2 allows lower common charges pursuant to a regulatory agreement to “ensure that the combined common expenses, mortgage and other housing costs paid by owners of units subject to such regulatory agreements do not exceed thirty percent of the household income limit specified in such regulatory agreements.” As such, common expenses for the income-restricted units do not have to be proportional to those of the market-rate units; those charges can be limited both in terms of the amounts set and in the rate of increase.

Curiously, the AHRA frames this in terms of disclosures that have to be made as opposed to a direct requirement. This is also true for another provision that contemplates that the regulatory agreement can have specified requirements obliging market-rate condo owners to “cover any shortfall in the revenue from rent to cover the costs of operation of the income-restricted rental units.3 Epstein’s explanation is that the relevant agencies (HPD or the State Housing Finance Agency) have represented that “their goal here is wanting to preserve permanently affordable housing” and that they can be relied on to have regulatory agreements that detail protections for the income-restricted units.

What is a “special risk” for the market-rate owners is a mechanism that would apparently avoid the need for the qualified owner to seek supplemental governmental assistance down the line for operating expenses.

Tax benefits for affordable units — and only affordable units

Another significant cost for condo owners can be the real estate taxes attributable to the units. But, here again, there are provisions of existing law that aid in the sustainability of the model, Epstein pointed out. The Real Property Tax Law can provide exemption from property tax for charitable use including non-market housing (section 420-a) and for non-profit housing development fund companies and non-profit housing companies operating housing for low-income persons under a regulatory agreement (section 420-c).

So, the income-restricted condos — which are separate entities for tax purposes from market-rate units and are to be run by the relevant not-for-profits — are the units that get the tax exemption. The more familiar type of subsidy — where much of the subsidy goes, for a period of time, to market-rate units (or, in the rental context, to the landlord of market-rate tenants) is not involved.

Capital sustainability

In discussing the issue of the sustainability of “permanent affordability” more generally, Matt Murphy, executive director of NYU’s Furman Center, an entity providing research and data on housing, neighborhoods, and urban policy, as well as promoting debate in those areas, used the cautionary term “permanent until failure.” He meant this in multiple senses. One is quite basic: “I just know that buildings fall apart over time,” hence there needs to be an adequate capital reserve to deal with. Another is similarly basic: it is difficult to predict developments — economic and political — far into the future. 

Third, and more complicated, is the willingness in the future of the relevant political entities to allow housing to fall into disrepair. (One need look no further than the New York City Housing Authority to see that there are some types of housing that politicians are prepared to allow to fall into deep disrepair for long periods of time. On the other hand, there has not been the willingness to simply walk away from public housing in the sense of allowing it to close down.)

The way that the AHRA deals with capital requirements is to require that the condo Board of Managers be provided with a dedicated reserve for “capital repairs, replacements and improvement necessary for the health and safety of the residents (including residents of the income-restricted rental units)” equal to at least 3 percent of the “total price,” which excludes income-restricted units. The full amount can be funded sale-by-sale, but has to be made whole within five years and a month of the consummation of the preservation plan.4The bulk of a building’s capital requirements would be taken care of by this fund and any other reserves that the condo board of managers causes the market-rate owners to make.

Paragraph (1-a) of the new Real Property Law section is explicit that, in the event that the capital funds are insufficient, “repairs and capital improvements necessary for the health and safety of the residents in all common areas and building infrastructure shall be at the sole expense of the condominium boards of managers.”

That leaves the question of the capital needs of individual income-restricted units (things like kitchen appliances and bathroom fixtures that ultimately have to be replaced). And, here, the AHRA’s answer is to create a reserve equal to 0.5 percent of the total price of all units other than income-restricted units. The fund created “shall not be used towards any building-wide capital replacement, and instead shall be used solely for unit repairs, replacements and improvements of the income-restricted rental units.” This fund must be established and transferred within 30 days of consummation of the preservation plan.5

Assembly Member Epstein hoped that the capital fund for the income-restricted units would be sufficient over the long term — “these are buildings are in pretty decent shape and once that reserve fund is created it should be self-perpetual” — but conceded that he had “no idea whether in 30 or 40 years that’s going to be enough.”

Habitat’s Dunbar had a more optimistic view, provided the that not-for-profit qualified owner is a responsible steward. He saw the 0.5 percent reserve as “just being a starting point of reserves” and that it would be critical for the not-for-profit to properly budget to ensure that a portion of the rent revenue is … being set aside for the maintenance and stewardship of those units.”

What about affordability in newly developed condos in strong-market areas?

There have been a lot of newly constructed condo units in the last decade and a half, as detailed on the next page. From 2007 through 2022, the overall number is just shy of 82,000 units. 

Remapping Debate was not able to nail down in time for deadline a count or estimate of the number of such units designated for low-income rental purposes, but that number: (a) is generally thought to be relatively small; (b) is completely excluded in Manhattan under the 485-x tax incentive (the successor to the 421-a program); and (c) is difficult or unpopular under Mandatory Inclusionary Zoning (which, by definition, does not apply to buildings being constructed without a zoning change).

Could that be made to change so that fewer condos in the strongest market areas would be developed with zero percent affordable units?

[Text continues on page 4, following the table of condo units.]

Newly constructed NYC condo units, 2007-22

Furman’s Murphy certainly thought that the idea of new condos where a portion of the units are designated as condos limited to affordable housing rentals was worth exploring. Such a development would have to be a “really carefully crafted deal with lots of regulations around it,” and you would need to “make it clear that the [market-rate] condo owners are indeed financially responsible and they have to build that into their maintenance structure” or other revenue generating measures (for example, flip taxes). But, he added, “you can price that in, essentially, to a condominium transaction.” 

This is something that, presumably, one could do in many areas of Manhattan that are “riper” for market-rate condo units providing cross-subsidy to affordable rental units. And that cross-subsidy in the market-rate condo context becomes available much more quickly than with rental buildings because the developer, upon selling the market-rate units, gets it investment capital and its profit back in full. (In new construction, of course, that can be delayed if the developer has the misfortune of putting the units on the market at an inopportune moment — right in the midst of an economic meltdown or pandemic, to give two examples), but, as Murphy puts it, condo developers “will take more risk to benefit from more reward.”)

Dunbar said, “If it can be successfully done 20, 30, 35 years down the road from [building] inception, then I don’t see a reason why it couldn’t be done and set up from the onset.”

To date, tax incentives have been the go-to means of encouraging affordable housing development, but an obvious political objection is, as Dunbar put it, the “perspective that giving a full building of the tax payment on all these market rate units was not the best use of public resources.”

With an AHRA-like mechanism, of course, there would not be tax abatements for the market-rate units. But that still leaves the question of inducements. Here, again, the example of the AHRA in the aftermath of the 2019 rent reforms might point the way. Rather than an incentive on top of the existing status quo, that status quo was changed (conversions made more difficult), so that, in these circumstances, getting back to the status quo counts as an incentive for the building owners.

Other sticks that turn into carrots might be raising the base rate of taxation on condo units, but bringing that level back down if there were a portion of the condos set-aside for low-income rental. Or lowering how tall condos could build, subject to a return to a higher height limitation with the addition of an affordable component.

What is clear, as of now, is that doing this does not appear to be on anyone’s radar, so condos in the strongest market areas will continue to go up with 100 percent of the units being market rate.