City plans to restrict inclusionary housing projects receiving 421a

The city is mulling a major change to how 421a and inclusionary housing commingle, one that would prevent developers from shifting certain density bonuses off-site.

The Department of Housing Preservation and Development is considering stopping the practice of allowing developers who are receiving the tax exemption to generate inclusionary air rights for off-site use, sources told The Real Deal. Under the old 421a, developers building inclusionary projects in R10 zoning districts could transfer air rights to other R10 properties in the same community district or within a half-mile radius. Under the inclusionary housing program, extra building space is granted for every square foot of lower-income housing built.

Now, developers will need to keep that density bonus on-site — meaning that they can’t bank on selling the air rights or, say, adding them to a market-rate project down the street. The extra square footage will have to stay wherever the affordable units are located.

When asked about the policy change, representatives for HPD provided limited comment.

“We’re taking a hard look at the rules to make sure we’re not oversubsidizing any developer, and that we’re using our resources to generate the most affordable housing possible, a spokesperson said.

By some estimates, the new 421a will cost the city $8.4 billion over the next 10 years, so limiting the perks a developer can rake in from two different programs simultaneously may be part of efforts to assuage criticism of industry giveaways. But some developers aren’t likely going to greet the change favorably.

Alvin Schein, partner at Seiden & Schein, said the new rule will apply to any project that did not have an inclusionary housing regulatory agreement in place as of June 2. He said the policy will likely impact many projects whose applications are pending. Schein also noted that the change could lead to smaller affordable units. Depending on the project, for every square foot of low-income housing (at or below 80 percent of the area median income), 1.25 to 3.5 square feet of bonus space is created.

He also said the quiet change will likely not sit well with the industry. If developers planned to build more inclusionary housing than was required in order to generate air rights to sell off-site, their projects may no longer pencil out. Schein also lamented the lack of an official change in law or regulations to alert property owners of the new policy.

“Developers lose confidence in government when they can just change the rules because they say so,” Schein said. “I’d like to see a legal process.”

Though it was revived in April, many elements of the new 421a, sometimes called Affordable New York, still remain ambiguous. For instance, it’s unclear how the city will assess new condominium projects that are eligible for the program and how the wage requirements will shape certain projects’ workforces.