By: Matthew Chang
Edited By: Lara Tomescu
New York’s Two Real Estate Challenges
New York City has a chronic oversupply of office space and a severe housing shortage. According to data from StreetEasy, the city’s rental inventory fell 5.8 percent year-over-year to just 26,238 available listings in December 2025 while the median asking rent rose 7.6 percent to $3,874.¹ Meanwhile, the New York City Economic Development Corporation said the citywide office vacancy rate was 13.8 percent in the fourth quarter of 2025, compared with a pre-pandemic average of 7.6 percent in 2019.² These differing conditions illustrate the opportunity to convert underutilized commercial properties to residential housing.
In April 2024, New York State responded with the Affordable Housing from Commercial Conversions program. Enacted by Real Property Tax Law Section 467-m, this program provides property tax exemptions for qualifying nonresidential buildings that are converted to rental housing. Generally, at least 25 percent of the apartments must be affordable, and those affordable units must remain rent stabilized.³
The policy is at an important juncture. Projects that started before June 30, 2026 were eligible for the longest benefit period. Later projects receive shorter exemptions, and no eligible conversion can start after June 30, 2031.3 In October 2026, the New York City Council introduced Resolution 663, urging Albany to extend the program’s start and completion deadlines. The Council’s concern is that complicated conversions may take longer than the statute allows.⁴
Any prolongation should be accompanied by stronger evaluation. New York should preserve 467-m where it creates housing that would not otherwise be produced, while limiting unnecessary subsidies for projects that are already economically viable without the exemption.
The Importance of the Tax Incentive
Converting offices into housing involves more than replacing desks with apartments. Many buildings require significant changes to plumbing, mechanical systems, windows, and other building systems. Physical feasibility must be established before starting construction, drawing up plans, obtaining approvals, and securing financing. To help owners overcome these regulatory and permitting barriers, New York City created an interagency Office Conversion Accelerator.⁵ Through the program, building owners are connected to a single point of contact to assess the feasibility of conversion, navigate regulatory requirements and expedite the required approvals and permits across city agencies.
Property taxes affect the financial feasibility of this project. The rental property needs to generate enough income to cover operating expenses, debt payments, and provide returns for investors. Property taxes reduce that income. Thus, a tax exemption of sufficient value can increase the amount of debt a project can support, reduce the equity required to finish it, or increase expected returns enough to make conversion to housing a more attractive choice than keeping it as office space.
Section 467-m intentionally changes that computation. Eligible projects that start in the first phase of the program may receive a longer exemption than those that start later. The declining schedule rewards early conversions but limits the length of the subsidy.³
The issue is timing. New York enacted the program on April 20, 2024. However, the first and most generous commencement window expired June 30, 2026. Developers had a little over two years to identify suitable properties, determine feasibility, arrange financing, complete design work, obtain permits, and break ground. Resolution 663 specifically cites these long periods of predevelopment as the reason for extending the deadlines.⁴
A tax incentive effectively changes investment decisions only if otherwise viable projects have sufficient time to respond to it.
Early Results Look Promising and Expensive
In 2025, the New York City Comptroller published a report that listed forty-four completed, current, or possible office conversions spanning roughly 15.2 million square feet, which could produce around 17,400 apartments. The Comptroller found that 467-m was helping to encourage conversion and to speed up housing production.⁶
A strong example is 5 Times Square. The office property, just under one million square feet, had a reported vacancy rate of 77 percent. The conversion, announced in 2025, is expected to create as many as 1,250 rental apartments, including about 313 permanently affordable apartments. The project is enabled by two recent legal changes: the 467-m tax incentive and the abolition of a state-imposed restriction on residential density.⁷
The program may be particularly important where an owner has a choice between reinvesting in an older office building and converting it to housing. The Comptroller found that in parts of Midtown East, 467-m is more likely to alter this calculation than in Lower Manhattan.⁶ This incentive alters the relative economics of competing investments to encourage housing development.
The program also shows why tax incentives have to be more narrow in their scope.
The conversion of 25 Water Street began in 2023, prior to 467-m becoming law. The project is developing 1,320 apartments and had already received a construction loan before the law was passed. Because 467-m applies retroactively to certain conversions beginning after December 31, 2022, the project was eligible for the exemption. The Comptroller estimated the present value of its 467-m benefits at approximately $434 million.⁶
The project demonstrates the difference between inducing housing and supporting it. The exemption could help meet affordability requirements at 25 Water Street, but the conversion had already been shown to be economically feasible before the incentive was in place.
That matters when you get to scale. The Comptroller estimated that 12.2 million square feet of possible Manhattan conversions could result in some 14,500 apartments, including 3,600 income-restricted units. The value of the tax exemptions associated with them was estimated at $5.6 billion.⁶
A program that means billions of dollars in forgone tax revenue should draw as fine a line as possible between projects that need the incentive and those that would proceed anyway.
Expand the Program, but Measure the Results
As a result, New York should extend the start and end dates for 467-m. The danger of the present system is that projects are excluded not because they are economically unsuitable but because complex conversions cannot get through predevelopment quickly enough.
Adding two years to the current start phases would provide property owners a reasonable amount of time to respond to the incentive. Later projects would not be forced into an unrealistic construction schedule, and the final completion deadline should move accordingly.
Housing Preservation and Development (HPD) should prepare and publish regular project-level reporting, including the number of qualifying conversions, total apartments produced, affordable apartments produced, geographic distribution, commencement dates, and estimated tax benefits. Current city programs assist owners with feasibility and approvals. Better data would enable policymakers to assess whether financial incentives are also necessary for some building types.⁵
The program should then be reviewed by the state before any further extension. The fact that 467-m is materially changing the conversion decision in some submarkets, but resulting in unusually large benefits for projects already underway, suggests that a single citywide structure may eventually need to be refined.⁶
The aim should not be to maximize the number of properties receiving 467-m. The goal should be to maximize new housing created per dollar of foregone tax revenue.
What’s Next?
The conversion of offices will be part of a broader housing strategy in New York. The design, condition, location, or existing tenancy of many office buildings means they cannot be converted. Tax policy cannot lift those constraints.
But the current office-to-housing pipeline can deliver thousands of apartment units while reducing obsolete commercial inventory. The city has already invested in regulatory reforms and the Office Conversion Accelerator to make these projects easier to execute.⁵ A 467-m extension would provide more time for the financial side of that policy framework to take effect.
Policymakers should also obtain better evidence in the coming years. The case for keeping the incentive will be stronger if future projects continue to require 467-m to make conversion cheaper than renovating an office or leaving it vacant. If the largest benefits go mostly to projects that would have been converted anyway, policymakers should narrow them.
New York created 467-m to alter private investment behavior for a public purpose. That is a larger function of tax law. Tax policy is more than a mechanism for raising government revenue. It alters the payoffs for economic decisions and can steer private capital toward public goals.
The program must therefore be judged on more than the number of exemptions given out. Its success will hinge on whether those exemptions result in housing that would not otherwise be produced.
Works Cited
- Lee, Kenny. 2026. “As Inventory Rises, Buyers Should Expect a Busier Sales Market in 2026.” StreetEasy. https://streeteasy.com/blog/inventory-rises-buyers-expect-busier-market/.
- New York City Economic Development Corporation. 2026. New York City Economic Snapshot: December 2025. https://edc.nyc/sites/default/files/2026-01/NYCEDC-NYC-Economic-Snapshot-December-2025.pdf.
- New York State. 2024. N.Y. Real Property Tax Law § 467-m. https://www.nysenate.gov/legislation/laws/RPT/467-M.
- New York City Council. 2026. “Resolution No. 663: Resolution Calling upon the New York State Legislature to Pass, and the Governor to Sign, Legislation Extending the Commencement and Completion Deadlines for Benefits under the Affordable Housing from Commercial Conversions (AHCC) Tax Incentive Program.” https://legistar.council.nyc.gov/LegislationDetail.aspx?GUID=4B746270-4102-4B8C-B495-0C2E4CEBF527&ID=8281385.
- City of New York. n.d. “Office Conversion Accelerator.” Accessed October 26, 2026. https://www.nyc.gov/site/officeconversions/index.page.
- Office of the New York City Comptroller. 2025. Office-to-Residential Conversions in NYC: Economics and Fiscal Estimates. Fiscal Note 6-2025. https://comptroller.nyc.gov/reports/office-to-residential-conversions-in-nyc-economics-and-fiscal-estimates/.
- Office of Governor Kathy Hochul. 2025. “Governor Hochul and Mayor Adams Announce Major Office-to-Housing Transformation at 5 Times Square to Create Up to 1,250 Homes, Including 313 Affordable Homes.” https://www.governor.ny.gov/news/governor-hochul-and-mayor-adams-announce-major-office-housing-transformation-5-times-square.
Author Bio
Matthew A. Chang is a financial analyst at a large commercial mortgage REIT, where he focuses on debt investments and asset management. He graduated from Cornell University’s Jeb E. Brooks School of Public Policy with a B.S. in Policy Analysis and Management, and a minor in Business. His experience spans real estate investing, investment banking, and fixed-income markets. His interests center on tax policy, commercial real estate, public finance, and the ways law and regulation shape private investment and capital allocation.
