Market-Rate Multifamily Projects of 100-Plus Units Down to Zero

Everyone knew the switch from 421a to 485x would mean fewer large multifamily projects.

Turns out, it’s not as bad as expected. It’s worse.

The new tax abatement has not merely reduced the number of mixed-income projects with 100 or more units. It has eliminated them.

Since the state enacted 485x in April 2024 with a wage floor for projects with 100 or more units — at the behest of construction union leader Gary LaBarbera — exactly zero such projects have registered for the program.

Fourteen of the 180 projects seeking the abatement would have exactly 99 units, but the average unit count is only 31, according to an analysis by the Real Estate Board of New York of the latest data (through October 31). Of the 5,546 total units, just 350 will be in Manhattan.

Clearly, the housing crisis has no end in sight.

When it comes to housing supply, large projects carry the freight — even with the de facto cap imposed by 485x. The program’s 99-unit projects make up just 8 percent of the buildings but 25 percent of the units.

Under the expired 421a, projects of 100 or more units yielded 59 percent of the homes, the NYU Furman Center found.

However, some 100-plus-unit projects are still being built in New York City. Because of the way all-affordable housing is funded and taxed, it pencils out without the 485x property tax break and is not subject to 485x’s union-friendly wage floor.

This might sound like a good thing to activists who want more affordable and less market-rate housing built. But they are wrong.

The supply shortage can only be fixed if both affordable and market-rate development are firing on all cylinders. Reducing the latter does not produce more of the former. They are different animals. Shrinking the elephant population does not increase the mouse population.

Affordable projects typically require piecing together a bewildering array of funding sources — Low Income Housing Tax Credits, project-based vouchers, grants and loans from city, state and federal agencies, foundation money and more. This Syracuse project has at least seven.

The timelines are longer because of the bureaucracy involved. The fee structure is different, as are the buildings themselves. For example, rooms in affordable housing must be larger. And units are rented via housing lotteries, not a standard leasing office.

Many developers don’t build affordable housing for the same reason that brain surgeons don’t do knee replacements. Instead, they do certain kinds of projects again and again, allowing them to gain expertise, increase efficiency and reduce risk.

Last month I ran into a developer who builds large multifamily projects but only as-of-right. He has no experience with rezonings and doesn’t plan to try one. Another firm, after a controversy, sticks to rehabbing empty buildings.

Nothing has been gained by stopping developers from building large, market-rate projects and the investors and lenders who fund them. All New York City is getting is less housing.

An activist might ask: Doesn’t 485x’s de facto ban on 100-unit projects allow affordable developers to outcompete market-rate ones for larger sites? Not really.

In many neighborhoods, rents are high enough that developers of sub-100-unit, 485x projects win the bidding for parcels zoned for more than 99 units. Sometimes they plan two or three “separate” sub-100-unit projects, avoiding the 485x wage floor.

Even if these midsize projects dried up, affordable development would still be limited by finite subsidies and the capacity of agencies that administer them.

The real estate industry and YIMBY groups need to get this message to Albany, and fast. The state legislative session kicks off next month and ends in early June. If 485x doesn’t get fixed by then, it’s “Wait ’til next year,” as Brooklyn Dodgers fans used to say.

They should explain that expanding 485x beyond 100 units won’t snuff out all-affordable projects, which in some areas are the only ones that pencil out.

Consider the Jay Group’s attempt to defy the odds and build a mostly market-rate project under 485x’s predecessor (421a) at 2886 Atlantic Avenue in East New York. The developer couldn’t lease enough market-rate units at the rents it needed ($2,500 to $3,000 for one-bedrooms), so it sold the project to Camber Property Group and the nonprofit Institute for Community Living, who turned it into a subsidized, all-affordable project.

If I were a civic-minded developer, I wouldn’t rely on REBNY or lobbying firms to make the case. I’d meet with as many Assembly and Senate Democrats as possible, so when they conference with chamber leaders to decide on an agenda, 485x has a shot to be included.

Otherwise, we’ll remain stuck at ground zero.

Editor’s note: This is the inaugural edition of Erik Engquist’s newsletter Reality Check, which aims to cut through the political spin and rhetoric that plague the real estate industry.