February 23, 2016

Mandatory Inclusionary Housing Update: Where Are We Now?

3 min

The NY City Planning Commission's (CPC) February 3, 2016 approval of the proposed Mandatory Inclusionary Housing (MIH) and Zoning for Quality and Affordability (ZQA) text amendments moves both MIH and ZQA one step closer to implementation and to the NY City Council (City Council) for review.

MIH, as approved by the CPC and upon implementation, would require that residential projects in rezoned areas (MIH areas) make 25% or 30% of all dwelling units permanently affordable (with few exceptions) (aka MIH units).

Following City Council hearings on February 9 (MIH) and 10 (ZQA), two MIH issues have become prominent:

Will MIH Affordability Requirements Be Changed by the City Council and Agreed to by CPC?

MIH as approved by CPC contains three possible affordability options, one or more of which may be applicable in rezoned areas (MIH areas) or to private rezonings. Suggestions have been made by City Council members, borough presidents, and others, and are being considered by the de Blasio Administration (HPD Commissioner Vicki Been, City Planning Commission Chair Carl Weisbrod, and Deputy Mayor Alicia Glen), to modify and/or add to the affordability options contained in MIH in various ways.

Changes being discussed include: requiring some units at lower AMI and rent levels, possibly counterbalanced by shifting affordable units to higher AMI and rent levels than in the MIH proposal; requiring a different percentage of affordable units; changing the exceptions to MIH, such as the minimum unit threshold, payment-in-lieu of MIH or hardship waiver consideration; requiring 100% of units be made affordable in industrial areas rezoned to allow residential use; and more. In particular, it appears that significant pressure by elected officials is being applied to broaden and/or deepen MIH affordability requirements – to lower the average AMI and rent levels for MIH affordable units and/or to require that a greater total percentage of units in projects be made affordable under MIH.

It is worth noting here that the City's own economic analysis in support of the CPC-approved MIH proposal assumed that the 421-a property tax exemption (421-a Statute) would be available without radically more onerous affordability requirements than the MIH proposal and without the imposition of prevailing construction wage requirements. As of the writing of this article, the 421-a Statute has expired, and, unless and until 421-a is extended or replaced by a similar program, no property tax exemption will be available for most new mixed-income projects that might be subject to MIH (with the possible exception of certain conversions of nonresidential properties into multiple dwellings).

If MIH as approved by the City Council imposes lower average AMIs for MIH units, how will mixed-income projects achieve a reasonable return while receiving rents below CPC-approved MIH AMI levels? If subsidies are to be provided to such projects, that might temporarily help the underwriting but not on a sustainable basis, since MIH imposes permanent affordability.

Potential MIH Locations

MIH is being contemplated for rezonings in the following neighborhoods:

  • East New York in Brooklyn;
  • Inwood and East Harlem in Manhattan;
  • Flushing West and Long Island City in Queens;
  • The Jerome Avenue corridor in the Bronx; and
  • Bay Street in Staten Island.

Developers and owners of property in these potential MIH areas, as well as owners of properties that might seek private rezonings, should focus on what MIH might mean for them and whether to participate in the political process by which one or more MIH options might be assigned to a rezoned area.

The exceptions from MIH for smaller projects are quite limited, and the current indication is that hardship relief from MIH affordability requirements may be limited as well.