How will 200,000 units of affordable housing be financed?
On May 29, New York City Mayor Zohran Mamdani and Deputy Mayor for Housing and Planning Leila Bozorg released a 99-page housing plan, “Block by Block.” The plan offers a wide-ranging strategy for housing policy, including zoning and administrative changes to expand the number of potential sites available for affordable housing, tenant protections, preservation of affordable housing, major renovation projects at the New York City Housing Authority (NYCHA) and homelessness reduction efforts. The core of the plan calls for the construction of 200,000 new units of affordable housing.
What is conspicuous by its absence from this blueprint, however, is an explanation of the plan to finance the construction of these units, not to mention the additional costs of preserving 200,000 units over 10 years, which the “Block by Block” plan also calls for. The financing question has received relatively little scrutiny from the press. Crain’s was an exception, noting in its first “key takeaway” about the plan: “The mayor is sticking with this housing target and adding a preservation goal even as funding remains a big question.”
That “big question” was left largely unanswered during the press conference announcing “Block by Block.” Mamdani said that the capital plan included with the FY 2027 Executive Budget would provide $22 billion in funding (including for NYCHA) over five years (FY 2026-FY 2030) to support his housing strategy, although only about $10 billion of that amount is dedicated to new construction of traditional affordable housing or “special needs” supportive housing and senior housing, with the balance mostly dedicated to housing preservation and NYCHA. To put this $22 billion commitment in context, the $5.8 billion in capital the City will invest in housing in FY 2027 represents 20% of the City's FY 2027 total capital budget.
When a reporter reminded the mayor of his campaign pledge to borrow an additional $70 billion (on top of $30 billion for housing already in the City’s 10-year capital plan) to finance 200,000 new units of affordable housing and asked whether there were other funding sources beyond the $22 billion, the mayor changed the subject to talk about finding efficiencies in capital projects related to the City’s compliance with a state class-size law, while Bozorg noted that, in addition to seeking ways to lower the cost of construction, the City would be looking at “innovative new financing tools” (such as a new revolving loan fund) and cross-subsidization from market-rate housing.
It was never realistic that the City could borrow an additional $70 billion over 10 years for affordable housing. Adding anything close to that amount of additional debt would far exceed the City's statutory debt limits and increase its debt service to approximately 18% of City tax revenues, compared to about 12% today.
There may have been multiple motivations for not laying out a financing plan in “Block by Block.” One may have been that laying out a plan showing significant shortfalls in funding would raise more questions than the Mamdani administration was prepared to answer. To acknowledge that the necessary financing for the 200,000-new-unit target far exceeds the amount of capital for new construction currently accounted for in the City’s capital plans may have been a bridge too far for the mayor, who has been criticized for retreating from some campaign promises.
The move away from borrowing in “Block by Block” was only the first significant shift away from the housing strategy described during the campaign. His second pivot was on the use of union labor: His campaign platform pledged that the public sector would construct those new units of affordable housing with union labor, which is much more expensive than the “open shop” labor rates at which most affordable housing has been developed. In that same press conference, the mayor acknowledged that instead, units would be built with labor costs at least equal to the City’s new Community Justice Act (CJA) minimum of $40 per hour in wages and benefits — roughly 30% more than “open shop” rates but still substantially less costly than union labor.
The third pivot involved the role of the private sector in affordable housing development. Mamdani said in the latter part of his campaign that his thinking had evolved to recognize the instrumental role of the private sector in developing affordable housing. Motivated by incentives to receive tax abatements as well as zoning concessions in some cases, private developers can finance the cost of affordable units through cross-subsidization from market-rate units.
Although these programs require a certain percentage of affordable units to meet income requirements with deeper affordability, most of the units can be at rent levels up to 130% of area median income or AMI ($198,510 for a family of three) — well above the maximum of 80% ($122,150 for a family of three), which applies to housing units partially financed with City subsidies. This broader definition of what constitutes “affordable” housing is a pragmatic way to increase the supply of housing at below-market-rate rents but represents a trade-off neither Mamdani nor the “Block by Block” plan discusses.
All three of these departures from Mamdani’s original campaign platform were acknowledgments of the economic realities of developing affordable housing in New York City. He is to be applauded for adopting a pragmatic approach — even though in many respects, these pivots make his strategy for developing new affordable housing far more similar to the approach of his predecessor than his campaign platform suggested would be the case. Indeed, the fact that Deputy Mayor Bozorg was the top housing official under Adams reinforces the sense of continuity.
How much affordable housing was getting built when Mamdani took office? According to the New York Housing Conference’s (NYHC) 2026 NYC Housing Tracker Report, which is based on the City’s counting methodology, in 2025 a total of 13,605 units of affordable housing were produced through new construction. Of these, 8,582 units were limited to those with household incomes of 80% of AMI ($122,150 for a family of three) or less, while 503 units were “moderate income” units available to those with household incomes between 81% and 120% of AMI ($183,240 for a family of three), and 4,488 units were “middle-income” units available to those with household incomes between 121% and 165% of AMI (approximately $252,000 for a family of three).
Compared to this rate of growth, the “Block by Block” plan, which contemplates a total of 14,000 new units of affordable housing in FY27 (of which 8,000 units would be subsidized by New York City and guaranteed to have maximum rents tied to household incomes of no higher than 80% of AMI and the remainder financed by private developers), may be realistic but is not exactly the qualitative growth in new housing that the Mamdani campaign promised.
Without a financing plan, it is not clear how the City expects it will be able to expand production to the 20,000 units annually that would set the City on a course for reaching its 200,000-unit 10-year target.
The economics of affordable housing
One reason the lack of a financing plan for the “Block by Block” strategy has not attracted more scrutiny is that most of the press, public and elected officials lack an intuitive understanding of the economics of affordable housing. Although the intricacies of the subject are technical and often confusing, it largely comes down to three basic drivers: siting, cost of construction and financing sources.
Siting is largely a function of zoning but also depends on land acquisition costs. The cost of construction is significantly influenced by statutorily mandated labor costs as well as regulatory factors such as building codes. And financing is primarily a function of its own five drivers, which we discuss in more detail below: the level of rental revenue (largely dictated by the affordability mix of the project), the amount of debt that can be supported by the free cash flow of the project, equity supplied by the developer, the availability of various types of government subsidies such as low-income housing tax credits and subsidized subordinated debt, and capital subsidies from a governmental entity.
While finding locations for new housing typically gets the most focus because it triggers both community interest and opposition, and is therefore politically controversial, a housing development plan also needs to be financeable. Whether a plan is fully financed usually comes down to the availability of capital subsidies, because other sources of financing are constrained by market economics (for example, the amount of senior debt the project can support given its cash flow) or statutory limits (for example, the availability of LIHTCs). In the words of developers, the financing needs to “pencil out” in order for banks to lend the money to make the project possible.
In the case of projects with 100% affordable units at low maximum rents, capital subsidies to make a project viable typically need to come from governmental entities. In New York City, nearly all of these subsidies are financed through New York City’s capital budget. Affordable housing units built and financed by private developers receive capital subsidies, in effect, from the cross-subsidization of market-rate units and are also supported by affordable units with higher rents than City-financed housing allows. In addition, New York State develops a certain number of affordable housing units without City capital in the form of supportive housing and senior housing for the frail elderly.
In the absence of an official financing plan, my colleague and I recently posted on Substack a detailed analysis (“What's Missing in the Mamdani Housing Plan”) of the financing aspects of the “Block by Block” plan.
The two central conclusions of our analysis are, first, that New York City currently lacks sufficient capacity to generate those LIHTCs, the federal credits, for a majority of these affordable housing units, because of limits in the amount of LIHTCs jurisdictions can issue. This limit on the availability of LIHTCs significantly increases the need for capital subsidies from the City. Second, we find that developing 200,000 units of affordable housing over 10 years would require tens of billions of dollars more in capital subsidies from New York City than are currently included in the City’s capital budget. Making that additional capital available would exceed the City’s statutory debt limits and would also substantially increase the ongoing costs of debt service payments in a City budget that is already overextended.
Perhaps the biggest unknown factor in the City’s plan for new construction of affordable units is the extent to which sufficient incentives exist for developers to build and finance affordable housing units when there are no City subsidies available. Recent developments have created headwinds that will make it more difficult for the development of affordable housing without City subsidies.
These incentives were significantly reduced in 2024 when the State replaced the incentive program known as 421-a with a successor program called 485-x. Under 421-a, in cases in which City subsidies were not required, private developers generally could receive a tax abatement on market-rate units provided that 30% of the project's units were rented at affordability levels of 130% of AMI. Moreover, 421-a, with limited exceptions, had no construction wage requirements.
By contrast, for most projects, 485-x reduces the number of affordable units that can be offered at rents affordable to those with more than 80% of AMI. It reduces the highest allowable income tier from 130% of AMI to 100% of AMI. 485-x also imposes materially higher wage requirements for projects of 100 units or more. Largely as a result of these reduced incentives, the number of mixed-income projects for which developers have filed applications in the two years since 485-x’s passage has declined, with nearly all of those applications submitted for projects with fewer than 100 units.
Due to constraints in the amount of private activity bond volume cap (discussed below) made available to the City by New York State, the City only has the capacity to generate low-income housing tax credits for approximately 5,000 units of housing. Presumably, the City will reserve that federal tax credit capacity for City-financed units, making them less available for mixed-income projects with cross-subsidized affordable housing units than has been the case in previous years.
In addition, Mamdani’s positions on rent increases for rent-regulated housing are likely to reduce the amount of private senior debt that affordable housing units can support. All affordable units built under the 485-x program are considered rent-stabilized. In view of his campaign promise to freeze the rent on rent-regulated apartments for four years (and the decision by the Rent Guidelines Board to freeze rent for at least the next two years), underwriters of debt for affordable housing are requiring higher debt service coverage ratios and/or higher reserves, which has the effect of reducing the amount of private sector debt affordable housing projects can support.
The “Block by Block” plan states that with $2.5 billion in capital subsidies from the City, the City will be able to support the construction of 8,000 subsidized units in FY 2027 and FY 2028, which implies that private developers will be responsible for financing another 6,000 units annually. The lack of a financing plan in “Block by Block” makes it impossible to know how many affordable units the City expects private developers will finance if and when the annual rate of production of affordable housing reaches 20,000 units annually or more, which is what would be required to meet Mamdani’s goal.
In the absence of better information, we are assuming that if Mamdani’s goal is to be achieved, over the next decade, roughly 80,000 affordable housing units will have to be developed and financed by the private sector without City capital subsidies, while 120,000 units will require City financing. Given that 485-x generally only requires developers to include 20% affordable units in a mixed-income project, the assumption that private developers will supply an average of 8,000 units of affordable housing per year implies construction of an average of 40,000 mixed-income units a year for 10 years — well above the rates of mixed-income rental housing constructed in New York City in recent decades.
What doesn’t add up
Based on the assumptions we describe in detail in our paper, we estimate that the total cost of development of an affordable housing unit built on land contributed at no cost to the developer by the City, with labor at Construction Justice Act rates (that is, $40 per hour in wages and benefits), is approximately $671,000. An affordable housing unit built on purchased land with labor rates reflecting premium costs for certain projects under the 485-x tax abatement law and the premium costs of union labor has an estimated cost of $806,750. Since we assume that 50% of the City-financed units were built on purchased land and 80% of City-financed units will be built with labor at Construction Justice Act rates, the average cost per unit of City-financed units can be estimated at about $714,000.
The table below provides a summary of the total uses of funds in development based on a blended average cost per unit:
The sources of the funds to build these units vary significantly based on the availability of federal LIHTC tax credits and subsidized loans from the City’s housing finance authority, HDC.
The table below shows the sources of funds for a hypothetical 200-unit City-financed project financed with 4% LIHTCs and an HDC second mortgage.
Tax credits such as LIHTCs are a precious commodity that are allocated by the federal government to the states and in turn by New York State to localities including New York City under a complicated mechanism we describe in depth in our paper. There are two kinds of LIHTCs — 4% credits and a much smaller amount of 9% credits.
Although 4% LIHTCs theoretically are as-of-right, developers’ practical ability to access them is limited by the federal government’s limits on the amount of LIHTCs a jurisdiction like New York City is eligible to generate. Technically, this limit is imposed by something called the “private activity bond (PAB) volume cap.” The federal government issues PAB volume cap to states on a per capita basis. States in turn allocate this PAB volume cap to localities and entities like HDC. In 2024, it appears that the allocation of volume cap for New York City and HDC was approximately $800 million. To be eligible for 4% LIHTCs, 25% of the total development cost of the affordable units in a project must be financed by these tax-exempt private activity bonds. After a calculation based on a statutory formula, our model indicates that this amount of PAB volume cap can generate approximately $1.0 billion in capital for affordable housing through 4% LIHTCs.
Put these development costs and these financing streams side by side, and our conclusion is that New York City only has sufficient capacity to generate approximately $231,000 per unit in 4% LIHTCs for a maximum of 4,379 units. In addition, the City only has capacity to draw down $121 million annually in the second type of low-income housing tax credit, the 9% LIHTC, which would provide approximately $195,000 per unit for a maximum of 619 units. Together, these comprise the nearly 5,000 units that can receive a portion of their capital structure from these valuable federal tax credits.
A smaller but still meaningful limitation is the amount of subsidized loans that can be made annually by HDC from its internally generated corporate reserves. However, this is another limited source of funding. We estimate that HDC has the financial capacity to support approximately $250 million annually in subsidized 1% loan units at a level of approximately $65,000 per unit – or 3,846 units.
The other main source of financing in affordable housing is known as first mortgage senior debt, which is the lowest-risk source within the capital stack, and has priority for repayment relative to subordinated debt and equity. The amount of first mortgage senior debt is based on a complex formula. Based on our assumptions, the amount of first mortgage senior debt per unit in the permanent financing will be $171,213, or approximately 24% of the sources of funding in the capital structure. As we have discussed above, the amount of senior debt that can be raised is likely to be negatively affected by concerns about the impact of a rent freeze on rent-regulated apartments, a category that includes all of these newly created affordable units.
Add it all up, and here’s where we arrive. With the exception of the other much smaller sources of funding from the deferral of a portion of the developer's fee and any sponsor equity, the balance of the capital structure must be made up by capital subsidies from New York City. The capital structure of affordable housing units looks very different when LIHTCs and HDC subsidized debt are available than when they are not. In the first scenario, only about 30% of the total financing needs to come from City capital subsidies, while in the second, 62% needs to come from City capital subsidies. In reality, many if not most projects requiring 60%-plus of the total financing to be provided by New York City in the form of capital subsidies may not get built, making it impossible to achieve the 200,000-unit, 10-year goal.
Conclusion
In the absence of more clarity from New York City about its intended mix of City-financed affordable housing units and affordable housing units financed by developers through cross-subsidization, it’s difficult to say with certainty how large the gap is between the funding the City has available to it and the amount it will need to construct 200,000 new units of affordable housing over the next 10 years. For reasons we've discussed, it may be difficult for private developers to supply even 8,000 affordable units per year in mixed-income projects, which would increase the amount of capital the City would need to provide to achieve its goals.
Based on the assumptions in our model about the number of City-financed units, the cost of construction and availability of financial resources, it appears that New York City will likely require in the neighborhood of $25 billion more in capital than is currently contemplated by the City’s capital plan without accounting for inflation — and close to $35 billion more when inflation is taken into account.
Does it matter that Mamdani has chosen not to explain how his ambitious plan would be financed, or even that the numbers don’t appear to add up? He certainly is not the first mayor to put out aspirational goals for new housing without characterizing them as such.
I would argue that it does matter, because it’s always important to hold elected officials to account by cutting through spin to present a truer picture of reality. I would also argue that the current schism in the Democratic Party — between a rising progressive movement that promises far-reaching change and disdains the strategy of incremental progress long held by mainstream Democrats — warrants scrutiny when progressives are actually in charge.
Mamdani’s idealism is inspiring to many, even people like me who disagree with him on many issues. But humility is not his long suit. Voters considering the choice between idealistic progressives and pragmatic moderates would be well served by having a clear understanding of just how far idealistic goals will go in the actual business of governing.
