Property tax assessments in Jersey City, New Jersey, are growing harder to forecast. As a result, developers working on thin margins are turning to nearby towns where tax structures offer more certainty. The shift may slow the region’s supply of new housing.
Jersey City has long led North Jersey’s residential development boom. But Jesse Toledano of Modern Spaces New Jersey says the city’s unpredictable taxes are weakening its competitive position. Projects are still possible to build, but their returns are harder to predict. Even a small change in taxes, he explains, can erase a project’s profit margin.
Toledano describes a pattern he sees more often. A developer plans a project assuming property taxes will equal 14% of the building’s gross income. By the time the building opens, that share has climbed to 16%. “That’s a big jump in your net income,” Toledano says. On a project with narrow margins, that gap can separate a profitable building from one that earns just enough to cover its loan payments.
For Toledano, the problem is not the tax rate itself. It is the difficulty of predicting that rate over a development timeline that spans several years. Developers build pro formas, or financial projections, three or four years before a building is fully leased. Those projections depend on stable assumptions. When tax reassessments change those assumptions during construction, a project’s finances can weaken before a single unit is leased.
Toledano says neighboring towns offer a clear contrast. Bayonne, for example, has attracted significant development in recent years. The city offers PILOT agreements (payments in lieu of taxes) and tax abatements. These arrangements let developers plan around a known tax cost for a set number of years. “You could put 14% taxes in your pro forma over a 10-year basis because you know your taxes are going to maintain to be a certain percentage of your gross income,” Toledano says. “That’s less predictable in Jersey City.”
Hackensack is also drawing new projects, Toledano notes. Developers are seeking approvals in towns that actively welcome more housing. New Jersey’s state affordable housing requirements have pushed some towns to accept development they might otherwise resist. That creates openings for developers who find Jersey City’s costs and regulations harder to manage.
Toledano notes that he is not a tax expert and does not claim to know exactly what triggers Jersey City’s reassessments. But he says the effect on developer behavior is clear. “There’s a lot of questions and conversations about what’s happening outside of Jersey City,” he says.
Broader data supports Toledano’s view that developers are hesitating. He cites a recent Bisnow report in which an economist found that construction spending across North Jersey rose about 20% over the past year. New project starts, however, rose only about 1%. Toledano reads the gap as a sign that developers are absorbing rising costs on projects already underway rather than investing in new ones. Those costs include higher construction loan rates, utility infrastructure charges, and tax reassessments during construction.
“A lot of people are just now saying, we’re going to sit on the sidelines and wait till things become more predictable,” Toledano says. He points to CoStar data projecting fewer project starts over the next three to four years. “That’s not good for affordability,” he adds. Renters have relatively competitive options now, but a slowdown in new supply will eventually tighten the market.
Toledano also points to a recently announced change in Jersey City’s water connection fees. He declined to discuss the details, but his broader point is that each added cost narrows margins further. For example, an extra $400,000 in connection costs on a $20 million project may not sink it alone. Combined with other increases, however, that cost can make the project unworkable.
Modern Spaces currently has a project in Bayonne and is tracking development activity in Journal Square, the Heights, and Bergen-Lafayette. In several of those neighborhoods, developers are switching from rentals to condos because rental projects are getting harder to make profitable. “The rental market is driven by where the debt market is,” Toledano says. When a landlord pays a higher interest rate on a building loan, that cost cuts directly into cash flow. Condo buyers paying for their own homes do not face the same pressure.
Condos offer wider profit margins than rentals, Toledano notes, but they also carry more risk. Jersey City’s condo market is still developing. Buyers also face higher property tax rates than they are used to in New York City. Developers must decide whether Jersey City condos remain cheap enough compared with Brooklyn to offset the higher taxes, especially at current interest rates.
Several condo projects are already testing that bet. Toledano points to a tower in Journal Square, a mid-rise in McGinley Square, and new buildings in Bergen-Lafayette. Modern Spaces also has projects in development in Journal Square and the Heights. He says mid-sized condo projects in the Heights have performed well, so developers are watching that format closely.
For North Jersey renters, the outlook is clear. If new construction keeps declining while the population grows, today’s wide choice and competitive pricing are unlikely to last. Today’s housing supply reflects decisions developers made three and four years ago. The decisions being made now point to less new housing ahead.
About the Expert: Jesse Toledano leads the New Jersey operations at Modern Spaces, a development advisory and leasing firm active across Jersey City and Long Island City.
This article is intended for informational purposes only and does not constitute legal, financial, or investment advice. The views and opinions expressed herein reflect those of the individuals quoted and do not represent an endorsement of any company, product, or service mentioned. Readers should conduct their own due diligence and consult qualified professionals before making any investment decisions.
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