Developers Build More Bedrooms As 99-Unit Projects Dominate

New York City apartment developers are building fewer studio apartments as they seek to make an unpopular housing incentive work for their projects.

The 485-x tax abatement’s prevailing wage requirements have led to the vast majority of new housing projects in NYC featuring 99 units or fewer, even on sites able to accommodate more apartments. But developers are still trying to maximize their sites’ values by building bigger units with more bedrooms, industry players said Wednesday at Bisnow’s New York Affordable Housing Conference.

That means more affordable units for families than under the previous tax incentive, when projects skewed more toward one-bedrooms and studios.

“It's fortuitous that we'll now see buildings with three-bedroom units, which have been sadly lacking,” Alvin Schein, a partner at Adler & Stachenfeld, said onstage at Convene’s One Liberty Plaza.

When 485-x was enacted in 2024, developers said the tax break’s prevailing wage requirements would lead to fewer units being built. Recent data has proven that theory: More than 90% of housing permit applications filed in the first three months of 2026 were for developments with 99 units or fewer, according to the Real Estate Board of New York. 

The 485-x tax abatement has led to 538 fewer apartments than their sites could have yielded, Gothamist reported.

“I have two projects in Manhattan that have left about over 40 units each on the table to stand at 99 units,” Fogarty Finger Director Harshad Pillai said at the event.

But those restrictions haven’t stopped development altogether — in fact, it has accelerated. While potential 467-m conversion site sales are partially fueling the investment sales market, it is also being boosted by developers seeking out sites that could make for good 485-x developments, Ariel Property Advisors founding partner Victor Sozio said.

“There's been a bigger uptick on the 485-x development market. You bring out a site now with 200K buildable [SF], right away people are like, ‘How do I chop this up into 99-unit buildings?’” he said. “That's driving a lot of activity.”

That mirrors what MSquared Director of Development and Investment Ian Lundy is seeing in the market.

“There's a lot of focus on these smaller sites that can accommodate 99-unit projects,” he said. “There's a lot of capital that's buying sites.”

Pillai said he is working on 12 projects in the five boroughs, two of them conversions and two condominium buildings. The remaining eight are rental projects — and all of the developers are combining 485-x with a City of Yes zoning provision that allows them to capitalize on available square footage by building larger units.

The zoning revamp’s Universal Affordability Preference grants developers in medium- and high-density neighborhoods the ability to build up to 20% more units than would have been authorized under previous zoning laws if those additional units are kept permanently affordable at a fixed, average area median income level of 60%.

Although one-bedroom units have typically yielded the best returns for developers, the combination of those two programs is now leading to larger unit sizes, Pillai said.

“The demand was so high that I was anticipating just a lot of ones and a lot of small units,” he said, adding that those are more popular in conversions due to office floor plates. “What we're seeing as a result of 485-x is that that's getting balanced because you have bigger units, because you're trying to stay under the 99-unit threshold.”

The change in unit sizes and income levels stands in contrast to a frequent criticism of 485-x’s predecessor, 421-a.

Developers using that tax break, which granted up to 35 years of property tax exemptions in exchange for setting aside a quarter of units as affordable housing, frequently built the majority of their properties’ affordable units for those making up to 130% of AMI.

Under 421-a, the deepest affordability was concentrated in studios and one-bedroom apartments under the program, according to an analysis of city data by New York University’s Furman Center. 

Around 30% of studios and 15% of one-bedrooms on the city’s housing lottery were reserved for the lowest AMI levels, the data shows. For two- and three-bedroom units, that decreased to 9% and 5%, respectively.

Larger units also had the highest concentration of units set aside for the highest-earning affordable tenants: 67% of two-bedroom units and 78% of three-bedroom units were reserved for residents who fit in the 130% and up AMI band. 

The change in tax incentive — despite developers feeling restricted by prevailing wages — will benefit the city in the long run, New York City Housing Partnership President Jamie Smarr said.

“I think overall, seeing bigger units get built through the zoning code is a good thing,” he said. “There's good things — obviously, zoning code — happening, good things also within the SPEED task force, and other stuff that's hopefully going to put bigger developments in areas with transit in higher-opportunity areas.”