New York State is becoming an attractive location for construction projects, yet there is still potential for further improvement. Governor Kathy Hochul has pledged a $25 billion investment to create 100,000 affordable homes within a five-year period ending next year. Mayor Zohran Mamdani has committed to building 200,000 new affordable homes and preserving another 200,000 over the next ten years, while working with developers to meet the city's need for half a million more units.
City and state authorities have revised community zoning plans, reduced cumbersome environmental reviews, and legalised tax incentives. These measures are intended to enable property owners to complete projects faster and reduce long-term costs. New, permanently established federal Opportunity Zones could direct additional investment into less prosperous census tracts that have not yet benefited from the state's multifamily housing boom. Developers are now eagerly awaiting the state's recommendations for these new zones, with the deadline expiring on 28 September.
Chris Milner, Head of Investment Management at Cantor Fitzgerald Asset Management, told Commercial Observer that the programme has generated many residential units in areas across the country where housing is scarce. Its permanent anchoring in the tax code is seen as a long-term affirmation of the assumption.
Realignment of Opportunity Zones
In 2017, Congress passed legislation allowing investors to temporarily defer taxes on previously earned capital gains by placing their assets into long-term investments, known as Opportunity Funds, which in turn invest in Opportunity Zones. If investors placed their gains into these funds for five years, their basis in the original investment increased by 10 percent. With a holding period of at least 10 years, they did not have to pay capital gains taxes on profits resulting from their investment. The Trump administration then designated 8,764 census tracts, accounting for approximately 12 percent of areas nationwide, as eligible for OZ investments.
The programme was partially successful, with over $108 billion in assets by the end of 2024, averaging approximately $20 billion in annual investment. However, the poorest areas of the country often did not benefit, as investors largely directed their gains to urbanised neighbourhoods that were booming or growing rapidly. According to the National Community Reinvestment Coalition, almost 42 percent of all investments flowed into just 1 percent of all zones, and 75 percent of OZ funds supported market-rate rental housing projects. A study by the Urban Institute also found that 93 percent of investments went into metropolitan areas, suggesting that the programme's incentives were not primarily directed to the areas most in need of help.
Revised Guidelines and Regional Impact
After Congress permanently renewed the Opportunity Zone programme, the Treasury Department revised the requirements to ensure that more capital is directed to underserved communities. To qualify, the poverty level of the census tract must be 70 percent of the regional or national median income, instead of 80 percent, or one in five people in the proposed zone must have an income below the poverty line. Investors who put more money into rural areas receive a 30 percent reduction in their capital gains tax.
These revisions mean that approximately 20 percent fewer communities nationwide will be eligible for federal funding. In New York, only 426 census tracts will be designated as OZs this year, compared to 524 under the original programme. In recent months, the state's economic development arm, Empire State Development (ESD), has sought to prioritise disadvantaged communities and strike a balance between urban and rural designations, while taking into account feedback from local communities. Existing OZs that continue to meet the new federal rules will not be excluded, according to ESD officials.
Emily Mijatovic, an ESD spokesperson, explained that New York is pursuing a targeted, statewide approach to Opportunity Zone designations, with a focus on directing investments to communities where they can support economic growth and development. The ESD evaluates eligible areas based on factors such as community need, housing growth, geographical balance, and regional input.
Which areas will ultimately be selected, including those in New York City, remains uncertain. During the original round, parts of Gowanus, Astoria, and Long Island City, as well as less affluent parts of the Bronx, Queens, and Brooklyn, were designated as Opportunity Zones. Large parts of southern and eastern Brooklyn, South Williamsburg in the borough, Flushing and Corona in Queens, the North Shore of Staten Island, East Harlem, Washington Heights, and almost all of the Bronx are considered eligible this year, according to an analysis by national accounting and real estate tax firm Novogradac. However, neighbourhoods that grew or gentrified too quickly could be excluded.
Jamie Ansorge, a Principal at the law firm Cozen O’Connor, emphasised that developers are most concerned about locations where they already have projects in the pipeline, which they may not yet have started. The re-designation of these zones under the '2.0' version is crucial to ensure continuity for investors. Ansorge would like to see census tracts designated around the four planned Metro-North commuter rail stations in the East Bronx, as he anticipates an increase in residents there. New transit options always open up new development opportunities, Ansorge stated.
