The low number of new build apartments developed and constructed in New York City is well-known and widely lamented due to the limitations of the 485-x state tax incentive. This two-year programme appears to cause most developers to limit new multi-family buildings to a cap of 99 units to avoid construction worker wages of at least $40 per hour. This becomes particularly clear when compared to the robust productivity of 467-m, another two-year state tax incentive for office-to-residential conversions, which does not include wage requirements.
Nate Bliss, founder and principal of Latent Urban Ventures and former Chief of Staff to the Deputy Mayor for Housing in Eric Adams’ administration, has now clearly laid out this discrepancy. According to his analyses, the average office-to-residential conversion project in the city – including completed and planned projects under 467-m – produces 298 apartments. In comparison, the average new build project under 485-x creates merely 39.4 apartments per project.
Bliss noted that the problems with the 485-x programme were already known when it was enacted. The biggest surprise, however, was how much was generated under the 467-m programme. Looking at this first wave of projects, 467-m produced more than twice as many permanently affordable homes as 485-x.
Bliss used pipeline data, encompassing both ongoing projects and those in the application stage. He found that currently 55 conversion projects under 467-m are registered or under construction, with another 15 in active plan review. In total, these projects are expected to yield up to 20,876 housing units, of which potentially 5,219 could be designated as permanently affordable. For new build projects under 485-x, he identified 301 potential registrations for a total of 11,869 planned units, 2,557 of which are affordable. Notably, 30 of these registrations comprised exactly 99 units, and only three projects exceeded the 99-unit threshold.
Nate Bliss believes that the construction wage requirements are just one aspect of 485-x hindering progress. He highlighted that 485-x is a mixture of many different requirements, incentives, and benefits. On the requirement side, there are wage standards, income limits, and depth of affordability. On the incentive side are the duration of tax relief and other economic features of the programme. It is evident that the mixture chosen by the state is not working. An adjustment of the parameters is necessary for the market to successfully utilise this programme.
Another interesting aspect of the two incentive programmes is their geographical distribution. 84 percent of projects being converted under 467-m are located in Manhattan’s primary business district, predominantly in Midtown and Lower Manhattan. Housing there is expensive, buildable land is scarce, and affordable housing is particularly difficult to realise. In contrast, 96 percent of new build projects completed or under construction under 485-x are located in Brooklyn, Queens, or the Bronx.
Bliss highlighted that much thought has gone into how to create affordable housing not only in the outer boroughs with cheap land but also in the best-equipped neighbourhoods with good public transport links. A single 1,200-unit conversion that meets the legal minimum could create approximately 300 permanently affordable homes in a high-priced neighbourhood – comparable to the affordable component of many smaller projects combined.
Bliss is currently working on a project to support the creation of new housing. After his time in politics and involvement in many regulatory reforms to promote more housing in recent years, he is focused on providing information about the latent potential of sites in the city for housing production. He is developing a tool where one can enter any address and receive a quick report on the untapped potential of that property. He is also aiming for a predictive analytics model that examines the history of office conversions over the past few years to forecast opportunities for the next wave.
Although there are currently no signs of state action to adjust 485-x, Bliss believes there are other potential avenues to find solutions that can increase the scale of new housing development in the city. He predicts that workers and the industry will come together to solve a problem relevant to both sides, as a stagnant new build pipeline is not beneficial for anyone.
