Developers and architects are busy coming up with ways to maximize the value of their sites — predominately by conforming new apartment projects to a de facto 99-unit limit.
Splitting what should be large developments into smaller ones is not a very productive use of their talents and resources, and will result in more expensive housing. But they must play the cards Albany dealt them when it passed the 485x tax break.
“For larger rental sites we are selling, developers spend more time trying to figure out how to subdivide the site to create 99-unit pads than on anything else,” commercial real estate broker Bob Knakal wrote in Commercial Observer.
It’s all because of the 485x wage scale that kicks in at 100 units.
This should come as no surprise to TRD readers. We have been reporting on the lack of construction loans for 485x projects with more than 99 units. Let us know if you hear of one.
“Developers filing projects with 99 units are trying to unashamedly circumvent the law”
Assuming this drought continues, the question is at what point does Gary LaBarbera and the construction unions in his umbrella group go back to the state legislature and say, “Sorry, we screwed up. The wage scale you put in the 485x tax break is too high. We’re not getting any work at those rates because no one is doing any projects that require them.”
The answer is, never. Either LaBarbera doesn’t want to admit to being wrong, or he thinks that eventually the market will support the wage floor (as high as $72.45 an hour) that the unions demanded and got.
“It is clear that some purely-profit-driven developers filing projects with 99 units are trying to unashamedly circumvent the law to avoid paying hard-working New Yorkers the fair and family-sustaining wages they deserve,” LaBarbera said in a statement. “This is yet another example of their focus on enriching themselves, as opposed to being committed to raising wage standards for workers and strengthening the middle class.”
But even if a developer wanted to pay construction workers $72.45 an hour, he would need a construction loan to do it. Lenders are not funding such projects because they don’t pencil out.
In the meantime, LaBarbera apparently figures the unions can get enough work from institutional projects (such as hospitals) and federally funded infrastructure work until the Trump administration turns off that spigot.
That puts the onus on state lawmakers to lower the wage floor. The benefits would be twofold: more housing and more work for unions, albeit at lower pay than the as-yet-unreachable 485x scale. Or lawmakers could keep the wage scale and increase the subsidy.
Reducing affordability would also help projects pencil out, but politically, that’s a nonstarter.
The annual legislative session ends in June, and lawmakers are only just finishing the state budget, which was due April 1. The earliest Albany would act on 485x would be next year, but even that is unlikely.
One industry source said that state lawmakers are suffering from “housing fatigue,” adding, “I don’t see the governor or the legislature going first” with a 485x reform push.
“Unless we start changing the people in office, given the current political climate, it’s not going to be like, ‘Oh my God, only 99-unit buildings are going up,’” the source said. “The typical elected official is just going to blame the owners, blame the landlords.”
It’s conceivable that the next mayor will use momentum from the election to push Albany for a 485x revision. Andrew Cuomo, the leading contender in the race, presided as governor over the 2016 deal for 485x’s predecessor after six months of fruitless negotiations between the construction trades and the Real Estate Board of New York.
But don’t bet on Cuomo, or whoever wins the mayoralty, spending his first few months in office pursuing something beyond his control, such as an Albany deal. Realistically, 2027 is the earliest year that 485x will be revised.
Until then, 99-unit projects will be the new normal for New York. And the housing shortage will continue.
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