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Policy Implications

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New York City policymakers will face a profound set of questions if the federal government succeeds in its current proposals to (1) significantly reduce funding for existing housing and homelessness programs, (2) expand the Low-Income Housing Tax Credit (LIHTC) program, and (3) expand the Opportunity Zone (OZ) tax incentive program.1 This section explores some of these questions and suggests a number of considerations for New York City and federal policymakers.

I. Federal Housing Programs

Existing federal housing programs fund more than $7.2 billion annually in New York City’s housing services and in the preservation and new construction of publicly- and privately-owned  income-restricted housing. These programs are means-tested and specifically targeted to a range of low-income households, including extremely low-, very low-, and low-income households, as well as to neighborhoods with disproportionately high counts of physically distressed properties.

The individuals who benefit from these programs often face many barriers to engaging with the policymaking or budget process. In addition, the same individuals and social service organizations may also face other cuts to the social safety net. As a result, New York City policymakers in this type of environment must be careful to build a local budgeting process that ensures all those who might benefit from housing programs are given an opportunity to participate, and that prioritizes meeting the most critical needs of this vulnerable population.

The risk New York City faces is difficult to quantify because proposals to cut these programs currently fit within a broad range.2 The city and state could potentially fill the gap imposed by smaller reductions in funding, but because the total amount–$7.2 billion–is so large, it would be difficult for the city and state to fill a substantial gap without raising taxes and/or cutting other services if the federal government imposed a significant reduction in funds. If support for federal housing and homelessness programs were reduced, policymakers would need to consider whether the city or state has sufficient tax revenue or capital funding to fill the gap. If not, they will face some challenging choices and tradeoffs, including the following:

Rental Assistance for Very Low-Income New Yorkers:

Most of the funds from the federal government for housing provide rental assistance to very low-income households. The average income of a household living in public housing is just $25,057,3 the median income for a voucher household is $13,2554 and the median income for a household assisted by the Project Based Rental Assistance program is $15,384.5 Without assistance, these households would otherwise face severe rent burdens, housing instability, or even homelessness. At the same time, landlords who own units supported in part by those subsidies use that income typically to pay for the day-to-day operations of the building, and would face difficulties meeting the operating costs of their buildings. When the subsidy is no longer available, landlords may face significant financial shortfalls, which can create an incentive to replace low-income tenants who have lost assistance with higher-income tenants who can pay the same rent without subsidy. The funds that provide rental assistance include the voucher program, public housing and Housing Opportunities for Persons With Aids (or HOPWA, which funds housing and supportive services for low-income people living with HIV/AIDS). If those funds were substantially reduced, policymakers would have to consider the following questions:

  • What increases in taxes or decreases in funding for other programs would the city have to make in order to provide rental assistance to the same number of households and at the same payment standards?
  • If required, how could the city spend less on rental assistance without severely impacting this population? There are at least two ways to spend less money:
    • Reducing subsidy amounts by providing a shallower per-unit subsidy to the same number of households, or by limiting the time households can draw on the subsidy. This could impact owners’ ability to manage buildings without having to cut operating expenses, and make it even harder for households with vouchers to find housing.
    • Reducing the overall population served by the program while maintaining the per-unit subsidy amount and automatic renewal structure. This can be done through terminations (taking vouchers away from households already in the program), or through attrition (not issuing new vouchers to other households when a current voucher holder leaves the program).

Either option would put very low-income people who currently rely or would ordinarily rely on a voucher or other forms of rental assistance at risk of homelessness.

Housing Quality and Distress:

The city also spends federal housing dollars to address hazardous conditions in physically distressed properties. This includes the Community Development Block Grant program (CDBG), which is predominantly used to fund code enforcement and emergency repairs performed by the New York City Department of Housing Preservation and Development (HPD) and repairs in public housing. Emergency repairs and funds for public housing are focused on “Class C” or “immediately hazardous” violations including inadequate heat, peeling lead-based paint in homes with small children, no hot water, and mold.

Reducing operating subsidies can also put existing properties at risk of financial distress.6 In addition, even though the Section 8 program provides subsidies for tenants, property owners and managers of buildings in which voucher holders live would see less income if subsidies are cut, which may cause them to cut back on expenses. Not all expenses are equal and expenses cannot be cut evenly: owners would likely start by deferring less urgent costs such as repairs, routine maintenance, or staffing. In more serious cases, they may struggle to make mortgage payments—or, for unmortgaged properties, to cover insurance or utility bills. In the most extreme scenarios, some buildings could fall behind on property taxes, water bills, or other local government obligations. These pressures could trigger a cascading effect of deteriorating property conditions, declining property values and tax revenues, or even foreclosure in the properties that have come to financially rely upon this government assistance.

If funds were substantially reduced, policymakers would have to consider the following questions:

  • How can the city allocate tax levy dollars to maintain quality and protect against physical distress in its buildings?
  • If required, how could the city spend less without severely impacting housing quality in the immediate term? There are no easy trade-offs here:
    • The city could choose to focus code enforcement or emergency repairs only on particular building maintenance issues (e.g. only heat issues).
    • The city could seek to generate revenue with higher penalties on landlords for the initial violation, but that could put even more pressure on the landlord’s ability to cover expenses. This change would also likely require legislative changes.
    • To service immediate repairs, the city could adjust its capital spending strategy to prioritize smaller-scale preservation deals that require shallower subsidies, involve more limited scopes of work, and include partnerships with private lenders who administer the program. This would allow funds to be deployed more quickly and efficiently, even if it means focusing less on larger projects that involve new construction or more extensive rehabilitation (which in turn would mean less subsidy for those projects).

Homelessness and the Right to Shelter:

Cuts to programs like the Continuum of Care (CoC) and the Emergency Solutions Grant (ESG) would impact the Department of Social Services’ (DSS) ability to fund shelter operating costs, administrative costs, and the construction of shelters or supportive housing. The non-profit providers who rely on this funding stream would be at financial risk, as cuts make it impossible for them to pay expenses. If funds were substantially reduced, policymakers would have to consider the following questions:

  • What increases in taxes or decreases in funding for other programs would the city have to make in order to ensure existing shelter and re-housing operations continue and that shelter capacity is added if New York City continues to face record-high levels of homelessness?
  • If additional funding is not available, the right to shelter is mandated by consent decrees and legal settlements,7 so the city would either need to come up with more money for shelters or programs like CityFHEPS, or negotiate changes with the Legal Aid Society and the Coalition for the Homeless to size the city’s obligation to its resources.

Public Housing Capital:

Funding instability related to the voucher program may cause the New York City Housing Authority (NYCHA) to rethink its plan to convert properties using project-based vouchers, which has been the primary mechanism for rehabilitating distressed public housing buildings via the Permanent Affordability Commitment Together (PACT) program and the Preservation Trust. Cuts to the public housing capital fund would also hurt NYCHA’s ability to fund smaller system replacements. The city and the state have previously funded some capital projects and the city has provided funds to NYCHA to help finance its conversion programs. If federal funds were substantially reduced, policymakers would have to consider the following questions:

  • What increases in taxes or decreases in funding for other programs would the city have to make in order to allocate additional capital dollars and ensure projects in the pipeline at NYCHA are completed?
  • If additional funding is not available, NYCHA would face choices around which capital projects and conversions in the planning or design phase would have to be cancelled or reduced in scope, and which could be postponed. Those choices might be constrained by existing agreements between NYCHA, the city, the US Attorney’s Office, and the US Department of Housing and Urban Development (HUD).

Affordable Housing Development:

Cuts to the HOME Investment Partnerships program or reductions in the number, duration, or per-unit subsidy amounts for Section 8 Project Based Vouchers (PBVs) would impact the affordable housing preservation and new construction pipeline. This would affect not only tenants and owners, but also builders, construction trades, non-profit developers, architecture firms, banking institutions, and the whole economy of firms that contribute to new buildings. If the city loses these financing sources, policymakers would have to consider the following questions:

  • What increases in taxes or decreases in funding for other programs would the city and state have to make in order to allocate additional capital dollars to ensure projects in the pipeline close and “pencil” without federal dollars?
  • If additional funding is not available, HPD and the New York City Housing Development Corporation (HDC) would face choices around which projects in the planning or design phase would have to be cancelled or have subsidy amounts reduced, and which could be postponed into later years. The for-profit and non-profit developers in the pipeline will lose their investment in the land and any pre-development costs. If developers decide to carry the project hoping for the return of federal funds, the project would need to be modified.

Low-Income Housing Tax Credit Equity:

New York City relies significantly on the LIHTC program—especially the 4% credit paired with tax-exempt bonds—to finance new affordable housing construction. Very few new projects proceed without LIHTC equity, and the city’s development pipeline is closely tied to the availability of these credits. As a result, changes to the federal LIHTC program could significantly affect the city’s housing strategy. If fewer projects qualify for credits or the amount of equity declines (including because of changes in the pricing of credits or because of cuts to other subsidy sources like HOME or PBVs), then the city may need to shift more focus toward preservation, where capital needs are often lower. Conversely, federal reforms that enhance the value or accessibility of the credit could expand the range and viability of affordable housing development. The following section outlines proposed or potential changes that would either support or challenge New York City’s efforts—assuming the program itself remains intact.

Changes That Would Help New York City

Several federal policy changes under discussion would strengthen New York City’s ability to produce and preserve affordable housing through LIHTC:

  • Reducing the “50 Percent Test” to 25 percent: Congress has proposed lowering the threshold for private activity bond financing required to qualify for 4% credits from 50 percent to 25 percent.8 This change would allow more projects to access 4% credits without using as much of the state’s limited bond volume, significantly expanding the pool of feasible developments in the city.
  • Increasing New York’s share of federal 9% credit allocations: Any change to the allocation formula that increases the amount of 9% credits available to the city might help ensure new awards. Congress has proposed increasing allocations for calendar years 2026 to 2029 by 12.5 percent.9 If, on the other hand, Congress altered the allocation formula to disadvantage urban, high-cost or high-population states that would hurt New York.
  • Maintaining the fixed 4% credit rate: Congress previously enacted a permanent floor under the 4% credit rate,10 increasing certainty and predictability for financing. Preserving that fix is critical to ensuring continued investor interest and maintaining current equity levels.
  • Increasing eligible basis or expanding basis boosts: Congress could increase the percentage of development costs eligible for credits or expand access to the 30 percent basis boost. Congress could also provide a basis boost to projects meeting criteria, including providing more units to extremely-low income households. These changes would generate more equity per project and help close financing gaps, particularly in high-cost environments like New York.
  • Expanding DDA/QCT definitions or eligibility: Adjustments to the criteria for Difficult Development Areas (DDAs) or Qualified Census Tracts (QCTs) could extend basis boost eligibility to a broader set of neighborhoods, supporting more geographically diverse development across the city.

Changes That Would Hurt New York City

Other possible federal actions, including a loss of other subsidy sources like HOME or PBVs, could weaken New York City’s ability to finance affordable housing through LIHTC:

  • Restricting basis boosts: If Congress or HUD were to scale back eligibility for basis boosts without alternative subsidies or financing tools, it would reduce equity availability per project and limit feasibility, especially in higher-cost neighborhoods that rely on the boost.
  • Limiting access to tax-exempt bonds: Because eligibility for 4% credits depends on tax-exempt bond financing, any federal action to cap, restrict, or deprioritize private activity bonds could limit New York City’s production and preservation pipeline.

Geographic Implications

While the effects of cuts to key federal programs would be felt across the city, our maps show that the impact these programs have varies considerably by neighborhood. Cuts to programs like Section 8, operating funds for NYCHA or code enforcement funded via CDBG would likely have the most impact on upper Manhattan and the Lower East Side, much of the Bronx, central Brooklyn/East New York, and portions of Queens and Northern Staten Island.

II. Opportunity Zones

The Opportunity Zone (OZ) program has drawn both support and criticism, but it is important to note that the program was not originally intended as a housing-focused policy.11 Supporters contend that the OZ program spurred housing development in low-income census tracts, bringing investment and economic opportunity to designated zones.12 Critics question the program’s efficiency, noting that it involves forgoing substantial federal tax revenue, totaling more than $3 billion annually across the nation,13 in exchange for comparatively low levels of public benefit in targeted, affordable housing development, particularly when compared to other programs like LIHTC, which has detailed programmatic restrictions. Instead, critics argue that a significant proportion of OZ investment was in projects that likely would have proceeded without the additional incentive and that the program incentivized development in less distressed tracts than the low-income tracts that were the program’s focus, while placing greater emphasis on investments in market rate multifamily housing than on affordable, income-restricted housing.14

The program’s lack of reporting or data collection requirements make it difficult to comprehensively assess its scale or impact. Regardless of perspective, given the scale of public expenditure, and the claim that it might substitute for some of the programs threatened with cuts, this is an important moment to revisit the program’s design and goals.

What We Found:

We found higher levels of residential development in designated OZs compared to tracts that were eligible but never designated. However, when measured as a percentage of existing housing stock, development was significantly higher in designated non-low-income contiguous tracts than in their low-income counterparts. This suggests that the program’s benefits were disproportionately concentrated in, and more likely to flow to, higher-income tracts that were still allowed to be eligible. The difference in development rates we observed between designated OZs and other areas was predominantly driven by new market rate properties and affordable units set-aside in those properties as required under the 421-a tax exemption and zoning policy. Differences were not driven by properties using LIHTC or other government subsidy programs with OZs. In addition, much of the development coincided with city-initiated upzonings, which substantially overlapped with higher-performing designated zones. This overlap makes it difficult to isolate the specific effect of the OZ program and whether development would have occurred in its absence.

As the federal government considers renewing the OZ program, federal, state, and local policymakers should consider five key questions:

1. Is the Opportunity Zones program primarily a housing program?

If the primary goal of the OZ program is to induce more housing supply, federal policymakers should consider redesigning key features of the tax benefit. For example, the capital gains benefits could be tied to the number of new market rate and/or affordable units produced, rather than to how long the investment has been held. Policymakers could also decide that the capital gains benefits are only available to qualified funds investing in residential real estate, not other commercial or other uses.

Policymakers could also revise the program to support efforts to maintain the quality and affordability restrictions of existing housing. To accomplish this goal, the federal government would need to relax two requirements: (1) the definition for what kind of investment constitutes “substantial improvement” and (2) the requirement that substantial improvement occur within 30 months of the investment.15 Currently, investors must spend an equal amount to the building’s value to meet the “substantial improvement” test. This threshold excludes more moderate rehabilitation projects common in the affordable housing sector. The 30 month timeline is also a barrier to rehabilitating occupied buildings, where securing approvals and financing tends to take longer than 30 months.

As of the timing of this report, federal policymakers only plan to make some of these adjustments in rural areas and not necessarily for housing purposes. The reforms to the OZ program that provide a “bonus” step-up in basis do so only for qualified rural opportunity funds that predominantly invest in rural areas; this change could be extended to investments in housing in urban and suburban areas. Likewise, current reforms ease the “substantial improvement” test for projects in rural zones, with a special reference in the legislation to “data centers.” This change could also be extended to housing in all eligible areas.16

2. If the Opportunity Zones program is meant to explicitly support housing development, is the goal to incentivize market rate housing in stronger markets or affordable housing in more distressed tracts?

If the goal is to induce more housing supply, there has long been debate as to whether federal law requires more housing in low-income areas or a focus on developing more low-income housing in higher opportunity areas. Policymakers should consider how to achieve a mix of both, and avoid an approach that incentivizes new development solely in a city or region’s low-income tracts.

Because the program currently emphasizes capital gains benefits, it is strongly aligned with the construction of market-rate housing in tracts likely to offer higher returns to investors–such as non-low-income contiguous tracts or the highest-income low-income tracts. If these are the type and location of residential real estate investments the program is meant to induce, federal policymakers may want to give local policymakers more flexibility to designate tracts in strong residential markets with soft sites that have the capacity for more density. In that case, local policymakers would likely avoid designating more distressed tracts or weaker residential markets that are less likely to generate significant capital gains for investors.

If, instead, federal policymakers would prefer that the program focus on delivering affordable housing units targeted to low-income renters, they could set up the program so the capital gains tax benefit only kicks in, or is more advantageous relative to market rate investments, when at least some share of the units are restricted to households with specific incomes. Enforcement of that condition would require greater reporting and a robust compliance process. As we mention below under question four, to achieve this goal, the value of the benefit would need to be more predictable and something local policymakers could syndicate or capitalize for the purpose of an up-front equity investment.
 
As of the timing of this report, proposed reforms to the OZ program narrow the tracts that can be newly designated by (1) lowering the median income that would qualify a tract, (2) eliminating the option to choose non-low-income contiguous tracts, and (3) imposing a new requirement that the median family income cannot be 125 percent or greater than the area’s median family income.17 Whether those proposed reforms are appropriate depends upon where federal policymakers want the development to occur and whether the designated tracts combined with the value of the capital gains benefit would actually support new development. Federal policymakers should also consider whether the new development supported is worth the cost of the program.

3. If the program is renewed, how should New York approach tract designation and align Opportunity Zone investments with local land use tools and housing policies?

As our analysis of the relationship between OZ investments, upzonings, and property tax exemptions shows, it may be helpful for New York State and New York City to explicitly link OZ designations and transactions with upzonings or property tax exemptions, or to tie designations to market conditions:

  • If New York City wants to ensure affordable housing is built in OZs, the city could leverage programs like the 485-x property tax exemption and Inclusionary Housing–all of which require affordable housing in new developments–as well as Special Purpose Districts (SPDs) that use additional FAR, height, or bulk allowances to incentivize affordable housing. The city and state could intentionally designate tracts as OZs in areas that are most likely to see development under the 485-x program, or where Inclusionary Housing and SPDs with affordable housing incentives already apply, or in neighborhoods with planned rezonings that would trigger Mandatory Inclusionary Housing. It is important to remember, however, that census tracts and the boundaries of rezonings are unlikely to be exactly coterminous.
  • If New York City’s goal is to use the OZ program to increase overall housing supply, policymakers would want to ensure OZs are designated in areas with “soft sites”–tracts with lots of underdeveloped or vacant parcels with sufficient size and proper zoning for larger multifamily properties. Aligning OZ designations with these areas could help direct qualified investment toward sites where, when paired with city property tax incentives and zoning requirements, development is more likely to occur. This approach could support the production of a larger number of housing units, including affordable, rent-regulated, and income-restricted units required under existing local policies.
  • Whether their focus is on adding affordable housing or increasing housing supply of all types, New York City policymakers should also give special consideration to designating tracts that were recently upzoned or will soon be proposed for upzoning.
  • New York City policymakers might consider designating tracts where the capital gains benefits for investors are more attractive–namely non-low-income tracts (whether or not they are contiguous to low-income tracts) or low-income tracts likely to experience significant price appreciation. However, this approach would undermine the stated purpose of the program to encourage investment in “distressed” areas.

Currently, the proposal to extend the program continues the current practice of giving governors the power to designate tracts. But the proposal would obligate governors to select a higher proportion of rural tracts as OZs, which might disadvantage New York City.18

4a. At the federal level, should the Opportunity Zone program be restructured to explicitly support affordable housing development—particularly in high-cost markets like New York City—by making the tax benefit predictable, syndication-ready, and compatible with existing LIHTC?

4b. At the local level, are there creative strategies that local governments like New York City could use to steer Opportunity Zone investment toward affordable housing construction and preservation, or ways to increase the likelihood that OZ capital supports projects with greater public value?

According to the experts we interviewed and the existing literature,19 the OZ program as currently designed does not work well for affordable housing developments that also rely on other subsidy programs. Experts noted that few LIHTC or PACT deals have used the benefit directly or efficiently and that the OZ-related pricing benefit was minimal.

We considered whether, at the local level, HPD could attempt to capture some of the value of OZs by structuring a program around the benefit. This would include pulling together a pipeline of projects with strong OZ potential, as there will be a change in use, new construction, or substantial rehabilitation required. Then, for those projects, HPD would have to quantify the OZ tax benefit (a difficult benefit to model) and negotiate with OZ funds for equity investments in those transactions. There is some risk with this localized approach: OZ funds could simply choose to invest in other cities where they would enjoy greater benefits from the program.

Experts we spoke with also warned that this approach would be challenging to implement without substantial changes to the underlying structure of the program at the federal level. Unlike LIHTC, where the tax benefit is known and can be priced, syndicated, and capitalized at the time a transaction is being financed, the OZ tax benefit is difficult to model when the transaction is being financed. For example, investors and developers cannot know all the tax benefits they will accrue, without knowing the qualified investments’ capital gain in ten years.

5. Should the Opportunity Zone program be revised to add more local control, reporting, and transparency to the program?

The program currently gives each state’s governor the ability to designate OZ tracts, which are left in place for a prolonged period of time. Likewise, there is limited reporting on the investments being made and the value of the tax benefit, other than filings with the Internal Revenue Service (IRS). This makes it difficult for local policymakers, especially in a market like New York City, to make decisions about which tracts should be designated and strategize about implementing other place-based policies like an upzoning, marketing “soft sites,” or modeling whether other subsidies may be necessary to spur development in those tracts. Local policymakers should have the flexibility to determine which tracts are designated as part of a planning process that takes a wide range of policy levers into account, and they should be able to change which tracts are designated as they learn more about how feasible it is to use the tax benefit in a particular zone.

Currently, only the federal government receives limited reporting through tax filings on the size of the OZ tax benefit, and that information is not publicly available. As a result, local policymakers lack insight into the value of the benefit and are unable to assess its contribution to individual projects or estimate how much additional investment it may be generating. This lack of transparency also limits the ability of affordable housing lenders and government agencies to fully account for the benefit when structuring deals. In most subsidized housing transactions, public entities aim to maximize public benefit while ensuring that investor returns, including those generated through federal tax incentives, are appropriately considered. Without access to reliable data on the OZ benefit, it is difficult to evaluate whether public resources are being deployed efficiently.

The current proposal to reform the program does add new reporting requirements, both by the Treasury to the public and by funds to the Treasury and their investors in tax filings and disclosures. These new reporting requirements, however, focus on a higher level of aggregation and on which investors are divesting from funds. There are no new obligations for funds to report at a property or deal-by-deal level–including on how many units are produced, the affordability levels of the units, or on how the benefit is valued within a particular deal structure.20

III. A Final Takeaway

The purpose of this report has been to assess the impact on New York City of the federal government’s three major housing proposals: (1) significantly reducing funding for existing housing and homelessness programs, (2) expanding the Low-Income Housing Tax Credit and (3) expanding the OZ tax incentive program.

A reduction in federal funding for housing and homelessness–if not offset by state and local sources–would have serious consequences for low-income households and the neighborhoods where they live. Rental assistance cuts could increase rent burdens, evictions, and homelessness. Owners of buildings that use those programs could face revenue shortfalls, forcing them to defer maintenance, or failing to make mortgage payments to public or private lenders. Cuts to development programs like PBVs or LIHTC could weaken the pipeline of affordable housing development and rehabilitation projects. Cuts to programs like CDBG would hamper code enforcement and spending on emergency repairs to fix hazardous conditions.

Expanding the OZ program (and, to a lesser extent, the LIHTC program) cannot fill those gaps. The OZ program does not provide rental assistance to very low-income households, does not target benefits or units to very low-income neighborhoods or households, and prevents the benefit from being used to invest in emergency repairs or smaller rehabilitation scopes in existing buildings. Rather, OZs appear to be a tool for encouraging the construction of new housing, and the program appears to work best at delivering market rate units in areas that have been upzoned and that are contiguous to low-income tracts, but are not themselves low-income. Understanding the distinct roles of these programs is essential. Policymakers must be clear-eyed about what OZs can and cannot accomplish, and ensure that any expanded investment through OZs does not come at the expense of foundational programs that serve the city’s most vulnerable residents.

Read the rest of the report:

I. Executive Summary

II. Federal Programs

III. Opportunity Zones

V. Technical Appendix

Footnotes