NEW YORK — A new state housing tax incentive is reshaping the way developers plan projects across New York City, with many intentionally capping buildings at 99 units to avoid triggering strict wage mandates.
In the past year alone, 28 permits for 99-unit developments were filed — more than double the total from the previous 16 years combined, according to data from the Real Estate Board of New York (REBNY). The trend coincides with the rollout of 485-x, the state program that replaced the expired 421-a incentive in 2022.
Under 485-x, developers can qualify for lucrative tax abatements if they include affordable housing. But the law also imposes new labor requirements: any building with 100 units or more must pay construction workers at least $40 an hour, with increases for larger projects. For example, wages for projects with 150 units or more can start at $63 per hour depending on the location.
That shift has pushed developers to reconsider project scales, often prioritizing smaller, less efficient buildings.
MaryAnne Gilmartin, CEO of MAG Partners, explained how the rules changed her approach:
“We’ll build less housing, less quickly, and it’s less financially viable. Frankly, we just have less ability to address this housing crisis.”
Gilmartin originally envisioned two 400-unit towers on a Manhattan site, but she is now considering up to six separate smaller buildings — a patchwork solution that ultimately produces fewer homes at higher costs per unit.
Daniel Bernstein, attorney at Rosenberg & Estis, noted that the requirements slow down production:
“This means affordable housing will be built in smaller amounts and at a slower pace. There is going to be more housing produced. But you will not see the amount developed at scale because of the construction-wage requirements.”
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Developers argue the program adds 20% or more to project costs, especially when combined with high interest rates, rising land values, and potential tariffs on imported materials. Rick Gropper of Camber Property Group pointed out that scaling down doesn’t necessarily mean savings:
“You still have to have an elevator and other building requirements, with only 99 units to offset those costs.”
The New York City Department of Housing Preservation and Development (HPD), which oversees the program, said some developers are exploring larger projects but haven’t finalized filings. Meanwhile, REBNY has warned that the housing shortfall is so severe that 485-x in its current form won’t deliver enough supply to bring down rents.
Henry Perez-Tlatenchi, senior policy researcher at REBNY, said that while midsize projects play an important role in outer boroughs, the city risks missing larger-scale opportunities:
“The wage mandate means 485-x won’t come close to generating enough units to give New Yorkers meaningful rent relief.”
Housing advocates, however, remain cautiously optimistic. Rachel Fee, executive director of the New York Housing Conference, emphasized that it’s too early to judge the program:
“It’s important that we are maximizing zoning on each site and are building housing that works in different neighborhood types. We’re still very early in the life of the tax incentive. But if we’re not seeing larger buildings, then we would need to revisit this.”
The policy shift comes as Mayor Eric Adams pursues his “moonshot” goal of adding 500,000 housing units by 2032. Yet the rise of 99-unit buildings underscores the unintended consequences of wage-linked tax incentives. While the program has restarted some stalled developments after 421-a’s expiration, it may simultaneously be discouraging the scale of construction needed to close New York’s housing gap.
Originally reported by Paulina Cachero in Bloom Berg.
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