New York State’s scaffold law imposes a strict liability standard for gravity-related worker injuries, making property owners responsible regardless of fault. For small-scale multifamily developers, this law results in significantly higher insurance premiums that serve as a hidden regulatory tax, one that cannot be avoided through safer practices or better management.
James Smithmeyer, founder of JMJ Contracting and Development, develops projects in both New York and Massachusetts and directly sees the cost gap. He explains that insurance premiums for construction projects in New York are typically two to three percent of total costs, compared to about half a percent in neighboring states. “You probably end up paying two or three percent of construction costs in New York State for that coverage, which is what you need,” Smithmeyer says. “In other states, it might be half a percent, because you don’t have this strict liability that goes to the owner for any gravity-related injury.”
For a $5 million, 20-30 unit building, that difference, 2.5% in New York versus 0.5% elsewhere, means an extra $100,000 in insurance premiums. For small projects operating with tight margins, this is a significant and unavoidable expense. Smithmeyer notes that New York’s scaffold law is unique in its strictness: “In other states, if an employee is injured and the employer or subcontractor is at fault, the owner may have some liability, but not strict liability like in New York.”
This cost is not limited to direct insurance premiums. Subcontractors in New York also factor the higher liability risk into their bids. This can raise labor costs and reduce the pool of available trades, especially for smaller projects where compliance costs are a larger share of the budget. Some contractors may even avoid bidding on small New York projects altogether, further shrinking options for developers.
Unlike other construction expenses, the scaffold law premium cannot be reduced through efficiency, improved safety, or stronger project management. It is a regulatory cost set by state law, and all developers pay the same rate regardless of their operational track record. “A developer could have the best safety protocols and still pay the same premium as someone with average practices,” Smithmeyer says.
This uniform cost floor puts small-scale New York developers at a structural disadvantage compared to those in states with less onerous liability frameworks. For developers working on $5–10 million projects, the scaffold law’s insurance premium is a fixed cost that cannot be negotiated or optimized away. The result is a market-wide penalty that affects all participants equally, regardless of their competence or safety record.
For investors and lenders evaluating small-scale multifamily opportunities in New York versus other Northeast markets, this cost must be accounted for directly in underwriting. Unlike other project expenses, it cannot be offset through better execution or negotiated down with vendors. The scaffold law is a permanent feature of New York’s regulatory environment, not a variable that can be managed.
Smithmeyer observes that developers who remain active in New York have shifted their focus to submarkets where higher rents can absorb the additional insurance burden. However, this creates an invisible cutoff: below a specific project size or expected rent level, deals that would be viable in Connecticut or Massachusetts do not work in New York. The scaffold law, in effect, excludes specific projects from feasibility review regardless of their quality or potential community impact.
As policymakers seek to address housing shortages and encourage small-scale development in secondary markets, understanding the scaffold law’s effect on project economics is critical. Its insurance cost premium is not just a line item but a structural barrier—one that may help explain why similar projects succeed in neighboring states while stalling in New York. For developers and investors, recognizing and modeling this fixed regulatory cost is essential to making informed decisions about where and how to build.
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