Apartment construction in New York City has seen a sharp decline this year amid ongoing concerns about housing affordability. Data from CoStar indicates that housing starts for market-rate units have dropped by 67 percent compared to last year, decreasing from an average of 7,500 per quarter since 2021 to just 2,500 in 2025. The number of units under construction has also fallen, with the pipeline shrinking from 71,000 to 47,000 during the same period, as reported by Commercial Observer.
A key factor cited by developers is the implementation of the 485x property tax abatement program. This initiative replaced the previous 421a program and was intended to encourage affordable housing development. However, landlords claim that increased labor requirements and stricter affordability standards under 485x have reduced potential returns on investment.
“When you increase cost to a developer, they may ultimately decide the juice isn’t worth the squeeze,” said Victor Rodriguez of CoStar to Commercial Observer.
Rising construction costs continue to be a significant challenge in New York City—one of the most expensive markets globally for building new projects. Other contributing factors include high land prices, elevated union wages, and increased interest rates. These conditions have led many investors to purchase existing rental properties instead of pursuing new developments. Rent growth in New York currently stands at 2.7 percent for this year, which is more than double the national average.
Office-to-residential conversions are providing some relief for housing supply shortages. As of February, over 8,300 apartments were planned through such conversions across projects like those at 5 Times Square and the former Pfizer headquarters on East 42nd Street. The city has simplified approval processes for these initiatives, making them more attractive compared to expensive office renovations; however, these efforts still fall short relative to overall demand.
Opinions remain divided among developers and investors regarding the future effectiveness of the 485x program. Lev Kimyagarov, managing principal and co-founder at Development Site Advisors, previously stated that it “fixes real flaws” in its predecessor (421a) and could function within current political dynamics.
Government policy remains a significant concern for industry professionals ahead of an upcoming mayoral election: according to CoStar data referenced above, forty percent identified policy as their main obstacle when launching new projects.
Between 2020 and 2024, apartment inventory in New York City grew by only six percent—a figure far below increases seen in cities like Orlando or Austin where growth exceeded twenty percent over similar periods.
