New York State, like much of the country, is grappling with producing more housing units—including those serving low- and moderate-income residents. The New York Fed and NYU’s Furman Center recently convened a series of roundtables that brought together builders, developers, and housing experts to discuss affordable housing challenges and solutions. This article, the first in a two-part series on the issue, reflects the discussion, with a focus on factors that make housing more expensive to build and ideas to reduce costs and increase production.
Hard Cost Drivers
Hard costs for developing housing are rising, especially for materials and labor. According to roundtable participants, mechanical, electrical, and plumbing systems represent the biggest cost increases. Heating, ventilation, and air conditioning systems alone have jumped from $10,000 per residential unit a decade ago to $25,000-$30,000, today. Modern construction standards, all-electric requirements, stormwater protection, noise mitigation, and other added requirements all add substantial costs to new construction. Additionally, in cities and dense suburbs, remaining sites for affordable housing are often challenging and require extensive remediation or complex construction constraints, such as rock removal, water mitigation, or the need to bring infrastructure to the site.
Labor Market Pressures
New York’s labor market faces significant wage pressures. The baseline private construction minimum wage rose to $17 an hour in January 2026 for New York City, Westchester, and Long Island, though actual minimum wages typically reach $20 an hour. Public works projects in NYC require prevailing wages of $42.39 an hour plus $49.01 an hour in benefits. Builders stressed that the gap between prevailing and non-union wages has shrunk in upstate markets due to competition from data centers and massive projects such as the Micron semiconductor site in Syracuse pulling electricians and other trades away. At the same time, many non-union contractors, which are not bound by collective bargaining agreements, have closed, further reducing competition.
Rising Complexity and Risk
Risk management in affordable housing development changed dramatically after the Great Recession. Lenders now require projects to maintain larger interest reserves for up to five years and accommodate longer project development cycles. Increased risk mitigation has led professionals like architects and attorneys to triple their fees to account for longer, more complex projects.
Insurance Costs
Insurance costs consume 12 cents of every development dollar, primarily due to New York State’s unique scaffold law that holds owners and contractors 100% liable for gravity-related accidents regardless of fault. This absolute liability standard, unlike the comparative negligence approach used in states like New Jersey, where insurance costs are 3 to 4 cents per dollar, makes New York’s general liability insurance the most expensive in the nation. Cost escalation is reducing competition by forcing smaller contractors out of the market. Despite reforms underway—including New York Governor Kathy Hochul’s auto insurance changes and exemptions for federally funded projects—insurance costs remain a significant issue.
Minority and Women Business Enterprises and Bidding Challenges
New York City and New York State require participation from certified Minority and Women Business Enterprises, but there aren’t enough such businesses to meet the capacity of projects. This lack of competition drives up costs, with some specialized trades having only three qualified firms. Insurance costs also limit the growth of Minority and Women Business Enterprises, despite mentorship programs from larger housing developers.
Cost-Saving Ideas: Materials and Design Standards
Participants identified multiple cost-saving opportunities: eliminating copper pipes in New York City in favor of PVC, using plastic sprinkler pipes instead of metal, removing requirements of affordable housing finance programs such as bulk storage requirements, and reconsidering full broadband mandates. Each change could reduce costs by 5%, with cumulative savings of up to 30% in some cases.
Modular construction offers significant promise but requires a steep learning curve, participants said. The industry currently lacks sufficient scale to perfect the process, though one developer that has recently completed several modular projects expects to shorten the timeline for its next modular project by six months. Additional efficiency opportunities include working with prefabricated electrical components and panelized construction systems, in which walls, floors, and roof sections are manufactured in factories and then assembled on-site.
Financing
Participants expressed frustration with the complexity of financing affordable-housing deals. Developments usually require multiple funding sources, each of which comes with its own terms. Layering them and closing on the financing can delay project timelines. Complexities of the Low Income Housing Tax Credit (LIHTC) program contribute to the challenges.
Strategic Solutions
To address rising construction costs, experts emphasized smarter planning and systemic reform. Developers stressed that investing more time in predevelopment—through strategic design like back-to-back bathrooms and kitchens—delivers significant savings. Design-build models that integrate architects and builders early demonstrate superior cost control. Participants also supported broader changes, such as reforming expensive zoning requirements, studying international best practices, expanding the Minority and Women Business Enterprise pipeline through incentives, and adopting AI tools to streamline government agency approvals. These combined efforts, they say, could increase competition, efficiency, and affordability.
Claire Kramer Mills, Ph.D. is the director of community development analysis in the Communications and Outreach Group at the New York Fed. She focuses on consumer credit, small business, and local economic development conditions.
Javier Silva is a community development senior associate director in the Communications and Outreach Group at the New York Fed. He focuses on issues related to climate, health, small business, and Puerto Rico and the U.S. Virgin Islands.
The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
