The solution to New York’s housing crisis is squarely on the supply side. You don’t even have to be a believer in economics to reach that conclusion. 

Want proof? Look no further than the pandemic. When residential leases expired, people did not renew and moved to the suburbs. The greatly increased vacancy was tantamount to a supply increase, and the result was that rents dropped by a whopping 30 percent in Manhattan. There is not a housing policy that has been implemented anywhere in the United States that has resulted in rents dropping by 10 percent. We had a 30 percent drop. These are indisputable facts.

Why can’t policymakers get this through their heads?

To get new supply created in New York, we need real estate tax abatements based upon the costs to build that housing. For decades, we had the 421a tax abatement program. It lapsed, and we went a couple of years without one. Then the Affordable New York tax abatement program was adopted, which was a watered-down 421a. Then that lapsed, and it was replaced with 485x, a further watered-down version of Affordable New York.

To appease labor, 485x came with wage requirements that make the program unworkable. For developments of more than 99 units or more than 149 units — depending on the length of the tax exemption the developer’s shooting for — minimum wage requirements are set at $40 per hour or, in some areas, $72.45 per hour. I said to a policymaker recently, “Why not make them $240 per hour or $272.45 per hour? Labor will love you even more, and since none of those jobs are going to be created anyway, what’s the difference?” The response was nothing more than a furrowed brow and a puzzled look.

The fact is that for 99 units or less, the minimum wage requirements are not applicable. Since 485x went into effect at the start of 2024, there have been 23 applications for rental building permits in New York City. It’s not surprising that all 23 are for 99-unit buildings.

For larger rental sites we are selling, developers spend more time trying to figure out how to subdivide the site to create 99-unit pads than on anything else. This shows that 485x is misguided and is not going to incentivize the amount of housing that is needed.

Policymakers often argue that tax abatements on new construction are simply “giveaways to developers who are going to build anyway.” The facts don’t support that naive view.

In Manhattan south of 96th Street, 1.6 million buildable square feet of rental development land sold during the last year of the 421a tax abatement program. Two years later, without the program, it was 38,000 buildable square feet. In the last year of Affordable New York, 1.5 million buildable square feet of rental land was sold. Two years later, without the program, it was 68,000 buildable square feet. Those are facts, and any policymaker who says developers will build without an abatement is simply wrong.

The 467m tax abatement program, on the other hand, is a compelling program that many developers will use to convert commercial properties into residential. Under that program, you do not pay real estate taxes during the construction period (as they are refunded upon completion) and, after the conversion is done, you get a 90 percent reduction in your real estate taxes for 35 years. 

So this program makes sense and will be used to incentivize more conversions of older, obsolete office buildings to residential. And this dynamic is desperately needed. Currently, 57 Manhattan office buildings are being converted to residential with many more in the planning stages. The projects underway contain about 21.3 million square feet. Once that space is converted to residential use, it will still leave about 78 million square feet of existing office vacant. With an oversupply of office space and a 1.4 percent vacancy rate in residential, apartments are desperately needed.

This 467m type of incentive is something that will produce great results — the exact opposite of what 485x will produce.

We need new housing and need a massive amount of it, up and down the socioeconomic spectrum. The private sector can deliver as many units as we need and can do it very quickly. This would bring rents down and make New York more affordable for almost everyone. Isn’t that what all policymakers say they want? If they really want that, create an environment where it is possible.

The private sector will do anything you want it to do, provided the incentives are correct. When you try to make everyone happy, you often end up making no one happy. When trying to satisfy everyone when you are trying to address one issue, you often misfire. That’s exactly what happened with 485x. Change it. We desperately need the new supply. And, if you really want housing in New York to be affordable for everyone, which every policymaker says, do it soon!

My inbox was flooded last week in response to my column slamming the 485x tax abatement program in New York. The main response around: Well, if not 485x, then what? I’ll get to that in a bit. 

First of all, for those of you who are not aware of 485x, here is a crash course: It is nearly impossible to build an apartment building in New York City without a real estate tax abatement. For decades we had a tax abatement program called 421a. This program provided a tax abatement on new construction so long as a percentage of the apartments created were “affordable” for a period of time. It worked well, and buildings got built. Not as many as we needed, but a reasonable amount.

Then our policymakers allowed that program to sunset. Nothing happened for a while, and then a replacement program called Affordable New York was implemented. It was a watered-down version of 421a, and those temporarily rent-stabilized apartments now had to be stabilized permanently. Then Affordable New York was allowed to sunset, and nothing happened again for a period of time.

The newest incarnation of 421a is 485x, a further watered-down version. This time the abatement comes with minimum wage requirements for construction workers that are either $40 per hour or $72.45 per hour depending on the size of the building and the development’s location. Developments under 100 units are exempt from the wage requirements. Unsurprisingly, virtually all of the applications for new rental building permits have been for 99 units or less. This is not the way to get new supply.

The overwhelming majority of the feedback I received from my column asked what I would do instead to solve the housing crisis. I have a lot of ideas, and there are national implications and local implications for my suggestions.

On a national level, housing prices are too high because the long period of low interest rates has put many homeowners in the position of being chained to their house by a 3 percent mortgage. That house may be too small or too large for them, but they are not moving. How can you move and give up a 3 percent mortgage rate? This inertia within the housing market is constraining supply. That’s why when a new house comes on the market, an immediate bidding war occurs and costs escalate. Simple economics: Lower supply (because folks are not moving) leads to higher prices.

I suggest the federal government mandate that mortgages are a personal asset that you can take with you to your next home. The caveat would have to be some type of test to make sure the loan to value was appropriate. Provided this test, who would complain? The banks, that’s who. Simple solution: Pay the bank a 1 percent fee plus administrative costs when a mortgage is transferred. The misallocation of the housing stock caused by this inertia would go away, freeing up supply and exerting significant downward pressure on housing costs.

Now, locally. In New York City, we desperately need housing at all levels of the socioeconomic spectrum. My firm, BKREA, sells a ton of land in the city, and we are constantly speaking to developers of affordable housing who would love to build buildings with 100 percent of the apartments being affordable. They make offers, but the offers are woefully low and the seller does not transact with them. Why? 

“Because the line at the Department of Housing Preservation and Development (HPD) to get financing is four to five years long. I have to build in the carry of the land in my underwriting so I can only offer X dollars” — That’s the response most of the time. 

So here’s an idea: The federal government should give New York $20 billion for the creation of affordable housing (to be doled out to the private sector by HPD so real builders can build this stuff) in exchange for the state relaxing our rent regulations so the private sector actually wants to invest in the housing stock again.

Communist policymakers would hate this, but look at the hypocrisy of their positions. They all say they want New York to be affordable for everyone, but most of the legislation that is passed has the opposite effect. The unfortunate truth is that policymakers care more about getting re-elected than they care about the well-being of their constituents. Clearly, this is not the way it should be.

The reason that housing is such a pivotal issue is the impact housing has on the mental health of people. It is much more difficult for people who are homeless or constantly threatened with eviction to make wise choices. Choices about family, including choices about children and what’s best for them, often hang in a delicate balance with the stress that financial uncertainty and instability can cause. Creating more housing is critically important for a variety of reasons.

Here are some steps to create more supply and make the city more affordable for everyone: 

• Bring back the old 421a. Land values would go up. When land values go up, sellers sell. When sellers sell, buildings get built. And the labor unions will love the tens of thousands of jobs that will be created. What’s the point of having a potential job at $72.45 per hour that no one gets?

• Reinstate the Major Capital Improvement and Individual Apartment Improvement programs the way they were. Tens of thousands of shuttered vacant apartments would be under gut renovation within two weeks. How much sheetrock would be sold? How many sinks, toilets, bathtubs, stoves and refrigerators would be sold? How much tile and flooring? How many jobs would be created? How much more tax revenue would the city collect? This is a total no-brainer. 

• Bring back vacancy decontrol. This doesn’t negatively impact anyone. When tenants leave previously regulated apartments, those units are not getting rented at low rents to other tenants. Instead, they are nailed shut. Who does that help?

• Means test all rent-regulated tenants. I really don’t believe property owners want to kick grandma out of her apartment and onto the street. If people need the subsidies that rent regulation provides, have them prove it. Why? Two reasons: Because it’s fair, and because if a tenant was certified by the state as qualifying for rent-regulated housing, the “harassment” of tenants that the advocates fear would all but disappear.

Supply and more availability of housing solve all of our housing problems. Time for our policymakers to think more about their constituents than themselves.

In New York City real estate, where legislative initiatives and zoning dictate what can and can’t be built, understanding the rules isn’t enough—you need to know how to leverage them. That’s where BKREA’s Policy & Zoning SWAT Team comes in. We help property owners and developers navigate zoning, maximize buildable potential, and unlock hidden value in their assets.