HPD says new 421a “undermines” parts of inclusionary housing program

The new 421a “undermines” crucial goals of the city’s inclusionary housing program, according to the Department of Housing Preservation and Development.

To address the issue, the HPD will officially propose a rule change on Friday that will bar developers receiving the tax break from generating off-site inclusionary air rights. Previously, projects receiving 421a and participating in the inclusionary housing program could transfer air rights to other properties in the same community district or within a half-mile radius. Under inclusionary housing, extra building space — 1.25 to 3.5 square feet — is granted for every square foot of lower-income housing built.

The Real Deal reported that the agency was considering the change earlier this month. The HPD plans to publicly release the proposal Friday and hold a hearing Aug. 7.

The impetus for limiting the use of inclusionary air rights is to prevent condominium developers from gobbling them up, according to the rule change proposal provided to TRD. Most condo projects aren’t eligible for the new 421a. Condo developers are unlikely to include affordable housing in order to build bigger projects, especially with a wealth of inclusionary air rights available from 421a projects, according to the HPD.

“This glut of low-cost floor area bonus will diminish both the incentive to build affordable units on-site, and the ability of the program to generate affordable units off-site that otherwise would not have been constructed in the absence of the inclusionary housing requirements,” HPD states in the proposal.

Earlier this month, Alvin Schein, partner at Seiden & Schein, said the change could negatively impact developers whose building plans hinged on selling inclusionary air rights. He said the change could also lead to smaller affordable units in certain projects.

Leading up to the renewal of 421a, city officials and industry professionals noted that the success of the mayor’s mandatory inclusionary housing program hinged on the tax break’s return. But that doesn’t mean the two work together seamlessly.

The two programs differ in several key ways. For one, affordability requirements under 421a are based on a percentage of the project’s units, rather than as a percentage of the building’s floor area, as under MIH. MIH projects and neighborhood rezonings are subject to the land-use review process and have a history of getting held up by the City Council.

“They don’t really fit together perfectly,” said Erica Buckley, partner at Nixon Peabody. “HPD is trying to make it more harmonious.”