How a tax break program killed 538 affordable apartments in NYC

Something is missing on the empty, nearly block-size gravel lot at East 125th Street and Park Avenue in East Harlem, and it’s not just the building.

The property owner, Clipper Equity, intends to construct several high-rise apartments that could soon tower over the Metro-North train station next door.

Instead of a single structure, Clipper filed permits to divide the property into seven tax lots and develop a cluster of seven separate 99-unit buildings. The separate buildings are eligible for a tax exemption through what’s known as the state’s 485-x program. It was meant to incentivize new housing development, but it also allows companies to pay workers on a project as little as $17 an hour for buildings under 100 units instead of $63 an hour if it were a single larger building.

It also means Clipper is required to include 35 fewer affordable apartments in the collection of individual highrises compared to if it were developing one large 700-unit building.

The tactic is common.

A Gothamist analysis of permit data from the start of the tax program in April 2024 to April of this year identified 48 clusters of adjacent buildings with 99 units or fewer across New York City. They range from groups of two buildings that butt up against one another or rise side-by-side, to as many as seven, like the proposed East Harlem complex. In some cases, it is difficult to distinguish one structure from another built in tandem next to it, though they are considered separate entities if they meet city building requirements.

Under the 485-x program, owners of buildings with 99 units or fewer are only required to reserve 20% of apartments for low- and middle-income tenants in their buildings. For buildings with 100 or more units, the requirement increases to 25% of apartments.

The result is that developers will receive the tax break while constructing 21% fewer units of affordable housing under the program than they would have been required to if each project was a single building. Gothamist’s analysis shows that developers taking advantage of the tax break have added 538 fewer affordable units than they would have with larger buildings.

Housing experts say the arrangement limits new apartment production and hurts the city’s ability to meet its affordability needs as Mayor Zohran Mamdani aims to build 200,000 new units for low- and middle-income renters over the next decade.

“You’re losing units of production on the affordable side and overall,” said Brad Greenburg, CEO of NYU’s Furman Center, a housing research group. “These projects are not delivering the maximum number of units that they could have, and it’s never good to lose units.”

City Hall spokesperson Matt Rauschenbach said Mamdani is not advocating for changes to the state 485-x program.

“State tax policy plays a critical role in housing production in New York City, and we have been closely monitoring the implementation of 485-x since its passage,” Rauschenbach said.

Labor unions have called the 99-unit tactic a loophole that lets developers carve big projects into smaller buildings in order to avoid paying workers higher wages. Many developers say it’s a sound business strategy that makes a project financially feasible. But one thing is clear, city construction statistics show its use has become increasingly commonplace since the tax program went into effect last year. Applications are regularly approved by officials in the city’s Department of Buildings. And housing experts say it is taking a rising toll on the city’s affordable housing production.

Residential developments are being broken up into clusters of smaller structures

To assess just how much of a toll, Gothamist used city data to identify adjacent 99-unit buildings with the same owners, architects, zoning diagrams and financing records. In some cases, like a two-building development on Mt. Hope Place in the Bronx, project drawings call for two nearly identical towers standing side-by-side. In others, like the two-building cluster at 1655 First Ave. in Manhattan, the distinct buildings appear to be one single complex. Gothamist reviewed projects that were eligible for the tax abatement as of April 30 of this year.

Some residential clusters are made up of adjacent buildings, each with 99 or fewer units, like this 286-unit development on Far Rockaway Boulevard in Southeast Queens.

If it had been built as a single building, the tax break program would have required the developers to add 72 affordable units to the city’s housing stock. But as three separate buildings, the developer was only required to include 57 affordable units in the project.

From the outside, other clusters appear to be a single building, like this one on the Upper East Side.

As a single 198-unit building, it would have been required to have 50 affordable units. But as an assemblage of two 99-unit buildings, that overall number dropped to just 40.

Here’s a map of all the clusters and where the 538 affordable units would have been located:

State lawmakers enacted the 485-x property tax break in 2024 to replace a previous exemption that expired two years earlier, known as 421-a. Versions of that program were in place for decades but offered tax breaks for apartments priced well above what low-income New Yorkers could afford. Lawmakers let it expire without agreeing to a replacement in 2022, leading to a sharp reduction in new construction despite the city’s dire housing shortage.

The new program, born from negotiations between the Real Estate Board of New York and labor unions, applies different construction wage and affordable housing rules to different size projects in exchange for tax abatements.

Critics say the program limits the number of new affordable apartments during an historic housing shortage that has fueled record-high rents.

“You are losing affordable housing units in each of these separate buildings,” said real estate attorney Jaclyn Scarinci, a partner at the firm Akerman who advises developers. “When you're separating out buildings into 99-unit buildings, you are not maximizing the total number of dwelling units that you could do if you built it in one.”

Clipper, which owns the lot next to the Metro-North tracks on East 125th Street, has not yet issued detailed designs for its proposed project. The development’s architect Shmuel Wieder, who is listed on permits filed with the city’s buildings department, did not respond to questions about the plans after a brief phone conversation.

Clipper Equity Chief Operating Officer JJ Bistricer declined to comment on the total cost of the 628,000-square-foot project, or the decision to divide it into seven separate tax lots.

All told, developers have applied for the tax break in 299 buildings with 2,524 affordable apartments, data from City Hall shows. Almost all were for smaller buildings. Only three 485-x applicants planned to construct buildings with more than 99 units as of April, according to a separate analysis of city data.

Kim Darga, a vice president at the affordable housing finance firm Enterprise Community Partners and a former deputy commissioner in the city’s housing agency, said the use of the tax break to build smaller buildings is resulting in "a concerning loss of affordable housing."

Overall housing production increased more than 200% in the last quarter of 2025 compared to the same time period in 2024, the year the 485-x program began, according to a report by the Real Estate Board of New York. But city data shows the prevalence of clusters with multiple 99-unit buildings under the program has also risen rapidly over the past two years. Among 123 buildings in Gothamist’s analysis, 95 were proposed between April 2025 and April 2026.

The clusters of smaller buildings can also affect whether some of the city’s lowest-income renters can qualify for the affordable housing that is built under the program.

“Affordable housing” is defined as units with rents priced for low- and middle-income tenants based on their annual earnings in buildings that receive a tax break, government loan or other public subsidy. In 99-unit buildings that receive the 485-x tax break, affordable rents must average 80% of the area median income, or about $122,000 for a family of three. But projects with over 150 apartments must price the affordable units for tenants earning 60% of the area median, or about $91,600 for a family of three.

Duplicative designs and ‘absurd’ redundancies

Up until last year, a pair of three-story brick homes stood side-by-side along Mt. Hope Place in the Bronx, just off Jerome Avenue. That was before developer Buildhouser Inc. razed the old homes to make way for a much larger project on the now-empty lot.

The property belongs to a pair of limited liability companies with similar names registered at the same address and connected to Buildhouser Inc. and its principal Joel Brach.

In renderings attached to the construction fencing that separates the lot from the sidewalk, the two 99-unit buildings planned for the site appear nearly identical. They share the same architect: Nikolai Katz.

Katz has come to learn the nuances of the 99-unit debate. He has designed more of the building clusters than any other architect in the city, according to Gothamist’s review.

“Everyone’s coming in and wants 99 units,” Katz said in an interview.  ”It creates a situation where we're really doing some ridiculous things in terms of designing items three times instead of once.”

Katz’s other projects include a pair of 13-story buildings that butt up against one another on Woodycrest Avenue in the Bronx. The project is owned by ZLB Holdings.

“We had to do two separate recreation areas, two extra elevators, two extra fire stairs,” he said. “We’re doing two separate foundations, two separate mechanical systems and two separate filings of all the elements …  it is absurd to have to do all of those.”

He said developers determine that the redundancies – which also eat into precious space that could be used for actual apartments – still cost less than paying construction workers higher wages.

He questioned why lawmakers who crafted the tax break program didn’t anticipate that it would be used in this way given the “psychology of the developers.”

“It seems like they should have known that the developers will follow the path that leads them to the most profitable results,” he said.

A spokesperson for Gov. Kathy Hochul said the governor supports the program but that the state has no role in regulating 485-x. City officials say the buildings department merely approves applications that qualify under the law, such as the 99-unit structures.

Brach and Buildhouser did not respond to requests for comment. Neither did ZLB Holdings CEO Leo Brody.

Loophole or workaround?

The 99-unit debate boils down to a dispute over labor costs.

Under the 485-x program, developers have to pay workers a minimum of $40 an hour with annual 2.5% increases for housing projects containing 100 or more units. The minimum wage goes up to as high as $72.45 an hour for buildings with more than 150 units, depending on the neighborhood and project.

Since the program’s inception, developers and their lobbyists have denounced the wage scales as too onerous. Many have successfully split their lots into separate parcels and filed individual permits for adjacent 99-unit buildings.

“We knew most large projects would not move forward,” said Basha Gerhards, executive vice president of public policy at the Real Estate Board of New York. “The design of the program changes the math [for developers], and the math determines what gets built.”

Developers and their allies have argued that the 99-unit approach is crucial to keeping project costs down, getting loans and making projects financially feasible.

“It’s far more efficient and generates more housing if you can build one big project. Way more,” said Mary Anne Tighe, CEO of the real estate investment firm CBRE’s New York division. “But I can tell you that the choice is between doing nothing or doing what is fundamentally a workaround.”

Tighe said developers cannot be expected to meet both the wage and affordable-unit requirements of the 485-x program for larger projects.

“Our focus here is generating affordable housing,” she said. “We may have to sacrifice other social goals.”

Labor groups counter that larger projects can work financially even while paying higher wages, and have criticized the city’s buildings department for approving clusters of 99-unit buildings that are, for all intents and purposes, a single project.

“This is a strategy to get maximum taxpayer subsidy, pay workers lower wages and build fewer affordable apartments,” Building and Construction Trades Council  President Gary LaBarbera told Gothamist in an interview. “They are exploiting the intent of the law and, in my opinion, ripping off the taxpayers."

LaBarbera called developers’ arguments about labor costs a “false flag” to undermine the higher wage standards. LaBarbera met last month with Mamdani. He and City Hall officials declined to describe the specifics of their conversation.