The Math Always Wins: 485x’s Wage Triggers Are Choking Large-Scale NYC Housing

For decades, New York City has relied on tax incentives to produce rental housing. Without them, the math simply does not work. Construction costs, land costs, financing costs and regulatory costs all add up to numbers that private capital cannot justify without a program that closes the gap.

The old 421a program was far from perfect. But it worked. Between 2010 and 2020, nearly 70 percent of multifamily units built in buildings with at least four apartments were produced under that state incentive. More than half of the units completed in its final years were in buildings over 100 units. Large-scale housing got built. Supply was added. The city functioned.

Then 421a was diluted into “Affordable New York.” That version was further diluted into 485x. Each iteration attempted to respond to political pressure by layering on additional requirements. Each iteration made the economics tighter. And now we are seeing the consequences.

485x was heralded as the most pro-housing legislation in a generation in New York. But the early data tells a very different story. As of the most recent reporting, 485x accounts for roughly 3 percent of the city’s construction pipeline. Not a single building above 99 units has been registered as intending to use the program — in a city with a 1.4 percent rental vacancy rate, the lowest in more than 50 years. This should alarm everyone.

The problem is not subtle. It is structural.

Under 485x, projects above 99 units are subject to a $40 per hour wage and benefits package across the city. In certain higher-rent areas, projects above 149 units face even more stringent requirements of $72.45 per hour, even for workers holding stop signs outside the site. On paper, this may look like balance. In practice, it destroys feasibility.

Developers are not political actors when they underwrite a project. They are mathematicians. If revenue minus expenses minus debt service does not produce a return commensurate with risk, the project does not get built.

We are now watching policy collide with math.

Instead of building 200- or 300-unit buildings, which is the scale necessary to meaningfully address supply, developers are subdividing sites and constructing multiple 99-unit buildings. In one Downtown Brooklyn project, five separate 27-story towers are being built, each containing 90 units. That is 450 units broken into smaller components solely to avoid wage triggers.

Critics call this deceptive. It is not. It is rational behavior in response to flawed legislation. And the additional construction costs associated with building multiple buildings exerts downward pressure on land values, which results in sellers being less likely to sell. If they don’t sell, you get zero new units on the land.

If a 225-unit building does not pencil because mandated wages push costs beyond feasibility, but two 99-unit buildings do, the market will choose the latter every time. Even if it means duplicating lobbies, duplicating elevator banks, and duplicating mechanical systems. Even if it adds millions in redundant hard and soft costs. Because the alternative of paying wage levels that sink the capital stack will result in no project at all.

This is not about being anti-union. It is about acknowledging economic reality.

Higher wages on large projects are not absorbed by some imaginary excess profit margin. They are absorbed by feasibility. When feasibility disappears, so does supply.

And, when supply disappears in a city with a 1.4 percent vacancy rate, rents rise. Affordability deteriorates. The very households policymakers aim to protect are harmed.

Some lawmakers argue that it is too soon to revisit 485x. Others point to interest rates as the primary culprit. Certainly, higher rates have slowed construction nationally. But interest rates do not explain why developers are clustering at exactly 99 units. Rates do not explain why no project over 100 units is using the program. Rates do not explain why 485x represents a sliver of the pipeline compared to what 421a once produced.

The wage thresholds explain that perfectly.

Under 421a, large buildings were built because the economics worked. Under 485x, large buildings are not being built because the economics do not work. It is that simple.

The irony is that even the workaround, building 99-unit buildings, is inefficient. Splitting projects increases per-unit construction costs. More exterior walls. More cores. More systems. More duplication. That inefficiency drives up costs in a city already burdened with some of the highest construction expenses in the country. I recently sold a large site where there are 185,000 buildable square feet of zoning floor area not being used because of the 99-unit cap. I have never seen this in 42 years of selling land in NYC.

And the workaround does not function everywhere. In dense neighborhoods with irregular lot configurations or limited frontage, subdivision is physically impossible. In those locations, projects simply stall, or are built as condominiums to avoid the wage requirements. Land sits idle. Potential housing remains theoretical.

The city has recently rezoned areas like Midtown South to allow thousands of new units. But zoning without economic feasibility is symbolism. If 485x remains structured as it is today, much of that newly created capacity will never be realized.

The fundamental flaw of 485x is that it tries to give something to everyone — affordability mandates, wage mandates, political cover — while neglecting the single objective that matters most: production at scale.

If the goal is to meaningfully increase supply, the wage requirements tied to arbitrary unit thresholds must be eliminated. Not adjusted around the edges. Not delayed. Eliminated.

Let developers build 200-unit, 300-unit, 500-unit buildings without artificial cost cliffs. Let scale generate efficiency. Let capital flow where it can earn a rational return. In exchange, require real affordability for a feasible percentage of units, because affordability without production is an illusion.

New York City does not have a theoretical housing crisis. It has a supply crisis. And supply crises are solved by building.

Right now, 485x is suppressing the scale of production we need most. The 99-unit phenomenon is not a loophole. It is a flashing red signal that the structure of the program is flawed.

The math will always win.

If we want 485x to truly succeed and want cranes in the sky and apartments delivered at scale, we must remove the wage triggers that are choking off large-scale development. Otherwise, projects will continue to shrink, stall or disappear entirely while vacancy remains at historic lows and affordability drifts further out of reach.

Housing policy must be grounded in economics, not aspiration. Until 485x reflects that reality, it will continue to underperform, and New Yorkers will continue to pay the price.

Robert Knakal is founder, chairman and CEO of BK Real Estate Advisors.