NYC’s New Development Tax Credits Are Changing The City

New development tax credits in NYC are reshaping housing strategies, as developers adjust plans based on the 485-x and 467-m abatements, per Bisnow.

Impact of New Tax Credits

New York City’s recent tax credit overhaul, with the introduction of the 485-x mixed-income development abatement and the 467-m office-to-residential tax break, has led developers to reconsider their strategies.

Since the rollout, which has given developers almost a year to adjust, projects are evolving as developers respond to changing incentives. As these tax breaks replace the expiring 421-a abatement, developers are recalculating what gets built and where it happens.

Sergey Rybak, founder of Rybak Development, emphasized the need to fully leverage the 485-x tax break, noting its success hinges on a reevaluation of construction methods and locations.

Not Everyone’s Sold

Not all developers are enthusiastic about 485-x, particularly due to its stringent conditions, including prevailing wage requirements, which many believe make large projects unfeasible.

For example, the version of 485-x with the fewest housing units (6–99 per project) may be the most appealing to avoid prevailing wage requirements, but even this option may not be viable on many sites.

The requirement to set aside 20% of units as affordable at 80% of the area median income (AMI) further complicates decisions, with some developers questioning whether these larger units will attract enough demand.

Ariel Property Advisors’ Sean Kelly shared his experience selling a development site in Downtown Brooklyn, where building larger units under 485-x would have meant fewer apartments, but potentially higher rents.

However, without enough data to confirm that larger units will yield higher rents, the strategy of opting for fewer, larger units is uncertain.

Building Bigger in The Boroughs

While Manhattan developers have been quick to take advantage of the 467-m tax credit, which incentivizes office-to-residential conversions, those considering 485-x are more focused on boroughs like Brooklyn and Queens.

Rybak Development is among the few developers opting to build larger units, countering the trend of minimizing unit sizes to fit tax credit guidelines.

Rybak believes larger apartments in these areas will lead to more stable, long-term tenants and less turnover, ultimately making the investment more worthwhile in the long term.

Affordable Housing Shift

One of the biggest changes under 485-x is the shift in affordable housing requirements.

Previously, 421-a allowed for a broader range of affordable units (30–130% AMI), but now the focus is on 60% to 80% AMI. This could alter the demographic of renters in these units, making them more income-eligible and less reliant on subsidies like Section 8. 

Rybak suggests that these changes could lead to more stable residents and a higher quality of life, as units aimed at 80% AMI are priced well below market rates, reducing turnover and vacancies.

Looking Ahead

As developers continue to adjust to these new tax breaks, the city’s housing market may see a significant shift in terms of what gets built and where.

The trend of focusing on larger units, especially in the outer boroughs, combined with a shift toward 80% AMI affordable housing, could stabilize the market and improve long-term residency.

Developers like Rybak believe that while the landscape is changing, New York City remains a promising place to invest—provided developers are ready to embrace new tax incentives and adjust accordingly.