Apartment construction in New York City has experienced a significant decline this year, raising concerns amid an ongoing housing affordability crisis. Data from CoStar shows that housing starts for market-rate units have fallen by 67 percent compared to last year. The average number of units started per quarter has dropped from 7,500 since 2021 to just 2,500 in the current year. Additionally, the pipeline of units under construction has decreased from 71,000 to 47,000 during the same period, as reported by Commercial Observer.
A major factor contributing to this downturn is the transition from the expired 421a program to its replacement, the 485x property tax abatement. Both programs were intended to encourage affordable housing development; however, developers argue that new labor mandates and higher affordability thresholds under 485x have negatively impacted project returns.
“When you increase cost to a developer, they may ultimately decide the juice isn’t worth the squeeze,” CoStar’s Victor Rodriguez told the Observer.
New York remains one of the most expensive markets globally for construction. High land prices, union wages, and increased interest rates further complicate new ground-up developments. In response, many investors are choosing to purchase existing rental properties instead of building new ones. This trend is supported by rent growth in New York City reaching 2.7 percent this year—more than twice the national average.
Office-to-residential conversions have provided some relief. As of February, over 8,300 apartments were planned through such projects. Notable redevelopments include those at 5 Times Square and the former Pfizer headquarters on East 42nd Street. Streamlined city approvals for these conversions make them more attractive compared to costly office repositionings; however, these numbers remain insufficient relative to overall demand.
Opinions differ regarding the future effectiveness of 485x. Lev Kimyagarov, managing principal and co-founder at Development Site Advisors, previously stated that while there are challenges with the law it “fixes real flaws” in its predecessor and can be effective given current political conditions.
The upcoming mayoral election adds further uncertainty: According to CoStar data cited in the article above (CoStar), about forty percent of real estate professionals see government policy as their main obstacle for moving projects forward.
Overall apartment inventory growth in New York City was just six percent between 2020 and 2024—a stark contrast with cities like Orlando and Austin where inventory grew more than twenty percent during that time frame.
