- New York’s 485x program offers significant real estate tax abatements to encourage residential development, with exemptions lasting up to 40 years for larger projects.
- Developers must meet strict affordability requirements and pay higher minimum wages, which increase costs by $50–$100 PSF and lower the program’s financial appeal.
- The success of 485x remains uncertain as developers weigh the benefits of the tax breaks against rising labor and affordability costs.
According to Commercial Observer, NYC’s new 485x tax abatement program (approved in April 2024), offers substantial incentives to developers, with the goal of boosting residential construction in New York.
But while the tax savings can cover a large portion of construction costs, the added expenses have led to hesitation among developers.
Diving Deeper
Projects with at least 100 units receive a 100% real estate tax exemption for 35 years on new construction’s incremental assessment, while larger projects (150+ units) get a 40-year exemption and avoid land tax during construction.
These savings can offset a major portion of building costs, potentially making large-scale development more feasible.
Higher Costs Incoming
While the tax breaks are appealing, the legislation comes with strings attached. Developers are required to meet certain affordability targets and pay minimum wages significantly above market rates—up to $100 more per square foot in labor costs.
These requirements are putting financial pressure on developers, potentially wiping out the savings from the tax abatements.
Mixed Reception
Despite the potential long-term benefits, the increased costs have led to hesitation among developers, many of whom are reconsidering the viability of projects under the 485x program.
The combination of affordability mandates and wage increases is creating new challenges, limiting the initial appeal of the program.
What’s Next?
Although it offers significant financial incentives, 485x’s success remains uncertain. The real estate industry will be closely watching how developers navigate the program’s cost challenges, and whether the benefits outweigh the financial burdens in the long run.
Adjustments to the policy may be necessary to ensure it fulfills its promise of revitalizing New York’s housing market.
