New York City, October 6, 2025
News Summary
New York City has seen a sharp decline in new market-rate apartment construction, with quarterly housing starts falling from 7,500 to 2,500 units — a 67% decrease. Units under construction dropped from 71,000 to 47,000, driven by the replacement of the 421a tax abatement with the stricter 485x program, higher land and union labor costs, and tighter wage rules. Developers are leaning into conversions (8,310 units in the pipeline) and renovating existing buildings. Rent growth remains 2.7%, while construction wages and input prices have risen, adding pressure on new ground-up projects.
New York City housing starts plunge 67% after shift from 421a to 485x; conversions and contractor pay moves reshape pipeline
Top line: Housing construction starts in New York City have fallen sharply this year as a new tax abatement program replaced the previous incentive, developers rethink risk, and contractors raise pay and benefits to retain workers. Housing construction starts for market-rate apartments dropped from an average of 7,500 units per quarter (2021–2024) to just 2,500 units per quarter this year. The change represents a steep fall in new ground-up building and has pushed more activity toward conversions of older office stock and purchases of existing apartment buildings.
What changed and the immediate data
The drop from 7,500 to 2,500 units per quarter represents a 67 percent decrease in housing construction starts. CoStar provided the data showing the drop in housing construction starts. The total number of apartment units under construction in NYC fell from 71,000 to 47,000 in the referenced period, according to CoStar. At the same time, NYC rent growth is 2.7 percent this year. This rent growth is roughly double the national average and is occurring even as new supply slows.
Policy shift: 485x replacing 421a
The 485x real estate tax abatement program replaced the expired 421a program last year. Both 485x and 421a were intended to incentivize housing developers to build more affordable residential projects by reducing property tax burdens. The newer program puts more weight on affordability rules and labor standards, and many of the city’s biggest landlords say the program raises wage and other requirements that change project economics. As a result, some developers view the program as raising costs to a degree that makes new development less attractive.
Developers shifting strategy
Higher land prices, elevated construction costs and expensive union labor in the city make building new supply especially difficult. Analysts point to an increased trend of investors buying existing market-rate apartment buildings because that is a simpler investment than starting a new build. Some developers are sitting on the sidelines ahead of upcoming local elections, waiting for clearer policy signals. In a recent industry survey, 40 percent of real estate professionals cited government-related issues (such as wage requirements and an onerous permitting process) as the “top obstacle to development.”
Conversions and pipeline additions
Office-to-residential conversions are helping add units while ground-up starts fall. As of February (year implied as current in the article), NYC had 8,310 new housing units in the pipeline from conversions. Major planned conversion: Apollo Global Management, SL Green Realty and RXR plan to convert 5 Times Square into as many as 1,250 housing units. Major planned conversion: Metro Loft Management and David Werner Real Estate Investments plan to convert the former Pfizer headquarters at 235 East 42nd Street into a total of 1,600 units. Conversions remove older office inventory that would otherwise be costly to reposition as desirable office space, and recent bureaucratic changes have made conversions easier to pursue in many cases.
Contractor and labor market response
A separate 2025 study found contractors are raising pay and expanding benefits to compete for scarce workers. The Bonadio Group’s 2025 report surveyed more than 200 contractors in New York. The study found that firms are feeling the squeeze of overall building costs and many have passed higher costs to clients or delayed projects. Nancy Cox said wages have increased by 12.4% on average as labor shortages persist in the industry (per the study). To retain talent, companies are offering bonuses, profit-sharing retirement plans, training programs, flexible work options and mental health resources. About 79% of companies now offer cash bonuses, and over 90% of construction firms provide retirement plans, most often through profit-sharing models.
The study also highlighted that many firms are not using available tax credits: About 82% of respondents were unaware of available federal and state employment tax credits (study finding). Overall and nonresidential input prices are now up modestly year-over-year and much higher than pre‑pandemic: Overall and nonresidential input prices are now 0.8% higher than a year ago. And Overall and nonresidential input prices sit more than 40% higher compared to February 2020.
Industry views and policy options
Analysts recommend policy tweaks to restore the economics of new construction. One suggested idea is to offer tax breaks that extend into perpetuity if policymakers request deeper long-term affordability. Rezoning helps, but land is finite in a dense city, so incentives matter for private-sector willingness to build new units. Without meaningful incentives some developers will buy existing assets or build elsewhere.
Secondary effects and market context
The reduced flow of new starts has slowed apartment inventory growth citywide. Apartment inventory in NYC grew by only 6 percent from 2020 to 2024, per CoStar. By comparison, other U.S. cities saw much larger inventory gains during the same interval. The slowdown in new construction plus steady rent growth keeps pressure on affordability, and policymakers face calls to enable both more supply and deeper affordability.
FAQ
Q: How much did housing construction starts change this year?
A: Housing construction starts for market-rate apartments dropped from an average of 7,500 units per quarter (2021–2024) to just 2,500 units per quarter this year.
Q: What does that drop represent in percentage terms?
A: The drop from 7,500 to 2,500 units per quarter represents a 67 percent decrease in housing construction starts.
Q: How many apartment units are under construction now compared to before?
A: The total number of apartment units under construction in NYC fell from 71,000 to 47,000 in the referenced period, according to CoStar.
Q: What major conversion projects are planned?
A: Major planned conversion: Apollo Global Management, SL Green Realty and RXR plan to convert 5 Times Square into as many as 1,250 housing units. Major planned conversion: Metro Loft Management and David Werner Real Estate Investments plan to convert the former Pfizer headquarters at 235 East 42nd Street into a total of 1,600 units.
Q: How many conversion units were in the pipeline as of February?
A: As of February (year implied as current in the article), NYC had 8,310 new housing units in the pipeline from conversions.
Q: What did the contractor survey find about wages?
A: Nancy Cox said wages have increased by 12.4% on average as labor shortages persist in the industry (per the study).
Q: What did the contractor survey size and scope include?
A: The Bonadio Group’s 2025 report surveyed more than 200 contractors in New York.
Q: What is current rent growth in the city?
A: NYC rent growth is 2.7 percent this year.
Q: How much have input prices changed recently?
A: Overall and nonresidential input prices are now 0.8% higher than a year ago. Overall and nonresidential input prices sit more than 40% higher compared to February 2020.
Q: What share of professionals cited government-related issues as the top obstacle?
A: 40 percent of real estate professionals cited government-related issues (such as wage requirements and an onerous permitting process) as the “top obstacle to development.”
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Key features: quick reference
| Feature | Detail |
|---|---|
| Change in starts | Housing construction starts for market-rate apartments dropped from an average of 7,500 units per quarter (2021–2024) to just 2,500 units per quarter this year. |
| Percentage decline | The drop from 7,500 to 2,500 units per quarter represents a 67 percent decrease in housing construction starts. |
| Units under construction | The total number of apartment units under construction in NYC fell from 71,000 to 47,000 in the referenced period, according to CoStar. |
| Conversion pipeline | As of February (year implied as current in the article), NYC had 8,310 new housing units in the pipeline from conversions. |
| Major planned conversions | Apollo Global Management, SL Green Realty and RXR plan to convert 5 Times Square into as many as 1,250 housing units; Metro Loft Management and David Werner Real Estate Investments plan to convert the former Pfizer headquarters at 235 East 42nd Street into a total of 1,600 units. |
| Contractor survey | The Bonadio Group’s 2025 report surveyed more than 200 contractors in New York; Nancy Cox said wages have increased by 12.4% on average as labor shortages persist in the industry (per the study). |
| Rent growth | NYC rent growth is 2.7 percent this year. |
| Input price changes | Overall and nonresidential input prices are now 0.8% higher than a year ago and sit more than 40% higher compared to February 2020. |
| Top obstacle cited | 40 percent of real estate professionals cited government-related issues (such as wage requirements and an onerous permitting process) as the “top obstacle to development.” |
Contact for follow-up: for industry commentary or data verification, refer to the named data providers and the 2025 contractor study cited in this piece.
Deeper Dive: News & Info About This Topic
Additional Resources
- Commercial Observer: NYC apartment construction plummets
- Wikipedia: Housing in New York City
- Crain’s New York: NYC construction jobs still below pre-pandemic levels
- Google Search: NYC construction jobs 2025
- Construction Dive: How New York contractors fight labor shortages
- Google Scholar: construction labor shortages New York 2025
- Law360: NY construction co accused of layoff without proper notice
- Encyclopedia Britannica: layoff
- Long Island Business News: Long Island construction job decline
- Google News: NYC housing starts 485x 421a
Author: Construction TX News
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