COLUMNS
485-x: When Good Intentions Collide with Economic Reality New York City has long relied on tax incentive programs to produce rental housing — without them, the economics of building rental apartments at scale rarely work. Land costs, construction costs, financing costs, taxes, insurance and regulatory requirements add up quickly. Without some form of tax relief to close the gap, most projects cannot justify their investment.
Bob Knakal Chairman and CEO BKREA New York City (917)509-9501
For decades, programs like 421-a played that role. They were not perfect, but they worked. Large buildings were built across the city and significant housing supply was added. Today, that role is supposed to be filled by the 485-x tax abatement program. Unfortunately, the program in its current form is struggling to achieve its central objective. Instead of encouraging the construction of large rental buildings, it is pushing developers away from them. The reason is not politics — it is math. The wages mandated under 485-x for larger projects simply do not work economically. When developers run the numbers on buildings above the program’s labor threshold, the costs overwhelm the revenues that buildings with an affordable component can support. As a result, many of these projects cannot move forward. Developers respond to incentives. Today, those incentives are directing developers toward one very specific outcome — the 99-unit building. Across New York City, developers are spending time and money figuring out how to keep projects just under the 100-unit threshold. Architects are redesigning buildings. Lawyers are restructuring tax lots. Planners are slicing projects into phases, all with one goal: stay at 99 units. This behavior is not driven by a desire to build smaller projects. It is driven by survival. The economics of buildings above the threshold do not work under the current wage structure. So, developers then adjust their plans accordingly. But even as developers are redesigning projects to stay under 100 units, the Carpenter’s Union is attempting to stop the proliferation of 99-unit buildings. Their argument is that developers are intentionally avoiding the wage requirements that apply to larger projects. From their perspective, that outcome is unacceptable. But stopping 99-unit buildings will not produce more large buildings. It will just produce fewer buildings overall. If the only projects that work economically are under the threshold, eliminating those projects does not magically make larger projects viable.
70 MANN REPORT | APRIL 2026
rates, property taxes or rent regulations. They do control whether to build. If the economics do not work, they will not move forward. They won’t invest their own capital in a money-losing opportunity or won’t be able to raise the capital from someone else. And that is exactly what we are beginning to see. Sites that should be producing housing are sitting idle. Projects that once would have delivered hundreds of apartments are being redesigned downward. Developments that might have produced 300 or 400 units are being fragmented into smaller buildings to make the numbers work. And for the first time in my 42 years selling development sites, developers are not using all of their allowable density. I have never seen that before! This is not good housing policy. It is not good for the unions (fewer jobs), not good for developers (who go to other cities they may not know as well to build) and especially not good for the city (fewer jobs, lower real estate and income tax revenue) and, most importantly, fewer units. Only the politicians, who can point to their support of labor in order to get more votes, benefit. New York City does not have a shortage of small buildings. It has a shortage of large-scale housing production. If the city wants to see meaningful increases in supply, it must create incentives that support large projects. That means acknowledging economic reality and recalibrating the wage requirements embedded in 485x. The goal should be to design a program that allows buildings to be built — not one that unintentionally prevents them. This does not mean abandoning labor. It means designing a system where labor, developers, lenders and the city can all participate in projects that move forward. More jobs are better than fewer jobs. No one is satisfied with the current outcome. Labor groups are frustrated by developers avoiding the threshold. Developers are frustrated by numbers that do not work. Policy makers are frustrated that housing production is falling short of expectations. But the solution is relatively straightforward. Fix the program. Align the economics with the policy objective. If the goal is to produce housing — particularly large-scale housing — the incentive structure must support that outcome. Markets, and particularly the private sector, always respond to incentives.
Instead, it stops development entirely.
Right now, the incentives are directing developers toward 99-unit buildings. And if those buildings are stopped without fixing the economics of larger projects, the result will not be more housing.
Developers do not control construction costs, interest
The result will be no housing at all.
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