June 20, 2024, Update: On Friday June 20, New York City’s Department of Housing Preservation and Development (HPD), which oversees the City-regulated Mitchell-Lama properties, issued brief guidance to owners of the City-regulated Mitchell-Lama buildings. The guidance confirmed that the 5% shelter rent reduction applied to both cooperative and rental buildings and stated that it will apply to shelter rent calculations for Fiscal Year 2026 and beyond.
Also on June 20, New York State Homes and Community Renewal (HCR) issued a Memorandum to all State-regulated Mitchell-Lama buildings that provided a bit more information and covered both State-regulated Mitchell-Lamas in New York City and outside of New York City, since the statutory change affects each group differently.
In the Memorandum, HCR provided the following details regarding the new shelter rent tax law:
- applies to both Article II and Article IV housing companies;
- covers both rentals and cooperatives;
- indicates the reduction to 5% is automatic in New York City; but outside the City any reduction will have to be approved by the local legislative body;
- indicates such local consent for municipalities outside of New York City will have to be renewed every ten years; and
- applies to shelter rent calculations for Fiscal Year 2026 and beyond.
The guidance provided by HPD and HCR confirms the information we provided on May 20 in our Alert. We do not expect either agency to issue additional guidance beyond these policies, as there is no need for further implementation guidance.
The Mitchell-Lama program, created under Article 2 of the New York State Private Housing Finance Law, covers hundreds of properties operated in New York City and throughout New York state. The program provides affordable housing—both rental and cooperatively owned—to low- and middle-income households. Amid growing concerns regarding housing affordability, the program plays a crucial role in preserving access to reasonably priced homes, and the state’s final budget includes real property tax relief for Mitchell-Lama developments in New York City and the opportunity for relief for Mitchell-Lama housing located outside of New York City.
What is “shelter rent” under Mitchell-Lama?
Since the inception of the Mitchell-Lama program properties financed under this program had been required to pay 10% of “shelter rent” in real property taxes. Shelter rent is defined as the total rents (including any rental subsidies) received from the residents of the project minus the cost of providing electricity, gas, heat, and other utilities. An owner had to receive approval from the local legislative body, such as the New York City Council or a city council or town or village board outside the City, to receive this exemption. Now, Mitchell-Lama housing in New York City have taxes cut in half and will pay no more than 5% of shelter rent as property tax with the final budget. Mitchell-Lama properties in the rest of the state have the opportunity to also pay 5% or less of the annual shelter rent as property tax with the consent of the local legislative body. Any consent granted by such local legislative body shall expire every ten years; otherwise the rate of taxation shall revert to the previous level prior to such consent.
Regulation of rents in Mitchell-Lama properties
Rents in all Mitchell-Lama properties are subject to regulation by either the New York State Division of Housing & Community Renewal (DHCR, now known as Homes and Community Renewal, or HCR) or New York City’s Department of Housing Preservation & Development (HPD). Rent increases are determined by review of a budget-based rent increase submission by the owner. Because many residents of Mitchell-Lama properties are low- or moderate-income, but do not receive any rental assistance, DHCR and HPD have always been sensitive to imposing large rent increases which could adversely impact these residents.
Property tax relief may offset other challenges
Mitchell-Lama housing, along with almost all multifamily rental properties, have suffered from inflationary pressures, most particularly in regards to insurance and utilities, while at the same time confronting challenges with collecting on rent arrears. These combined challenges—increased costs and constraints on revenue—have resulted in some owners struggling to keep up with the needs of properties and have led to deferred maintenance and in some cases deterioration of property conditions.
This real property tax relief will aid many Mitchell-Lama properties to address needs without having to charge residents more rent. Our affordable housing attorneys are ready to help property owners, operators, and developers leverage Mitchell-Lama real property tax relief to maximize opportunities to maintain and improve their properties without burdening residents. With former HUD attorneys and a team focused on cooperative and condominium law, we offer unmatched guidance through every facet of this evolving regulatory environment. The Nixon Peabody team is monitoring all facets of the new budget and will keep clients apprised on how these developments will impact their day-to-day operations and long-term goals.