NYC Apartment Construction Plunges as 485x Fails to Deliver

11 September 2025

Apartment construction in New York City has cratered this year as the housing affordability crisis looms large.

Housing starts for market-rate units have dropped 67 percent from last year, falling from an average of 7,500 per quarter since 2021 to 2,500 this year, according to CoStar data. The pipeline of units under construction shrank over the same period from 71,000 to 47,000, the Commercial Observer reported.

One culprit, many developers say, is the 485x property tax abatement, which replaced the expired 421a program. While both programs were designed to spur affordable housing development, landlords argue the replacement piles on labor mandates and affordability thresholds that tank 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.

Construction costs were already a barrier, as New York is one of the priciest markets in the world to build. Add soaring land prices, high union wages and elevated interest rates, and the calculus for ground-up development becomes tougher. Many investors are instead buying existing rentals, betting on steady rent growth. That metric stands at 2.7 percent this year, more than double the national average.

Conversions are offering a partial release valve. As of February, more than 8,300 apartments were in the pipeline from office-to-resi projects, led by marquee redevelopments at 5 Times Square and the former Pfizer headquarters on East 42nd Street.

The city has streamlined approvals for such projects, making them more appealing than costly office repositionings. Still, the numbers pale in comparison to the scale of demand.

Developers and investors remain split on the future of 485x. Lev Kimyagarov, managing principal and co-founder at Development Site Advisors, previously said the law at least “fixes real flaws” in 421a and can work in today’s political climate.

The looming mayoral election is another overhang: 40 percent of real estate professionals cited government policy as the biggest hurdle to projects, according to CoStar.

For now, the city’s housing supply continues to lag. Apartment inventory grew 6 percent between 2020 and 2024, compared to more than 20 percent in Orlando and Austin.

— Holden Walter-Warner