Practice Areas
Inclusionary Air Rights
Recent Changes to the Inclusionary Air Rights Program
The Inclusionary Housing Program (the “IH Program”) of the New York City Department of Housing and Development (“HPD”) confers on developers (a “LH Developer”) of low-income housing transferrable development rights (called “Inclusionary Air Rights” or “IAR”) which may be used either on-site to enlarge a mixed-income project or off-site to enlarge a market rate project. Please note that IH Projects commencing on or after July 29, 2009 are subject to certain changes that have been made to the IH Program.
General Changes
The IH Program now includes a permanently affordable home-ownership option for lower-income housing. Also, many technical changes (including ratios of IAR bonus) have been made to the IH Program which are discussed in this memo.
July 29, 2009 Changes
1. In R10 Zoning Districts, there are now three (3) bonus ratios:
A. Privately financed new construction and substantial rehabilitation IH Projects will receive 3.5 square feet of IAR for each square foot of affordable housing. The previous ratios of IAR bonus for
new construction and substantial rehabilitation per square foot of low income housing created or rehabilitated were: 3.7 square feet for on-site new construction, 3.2 square feet for on-site substantial rehabilitation, 4.0 square feet for off-site private site new construction, and 3.7 square feet for off-site private site substantial rehabilitation.
B. Preservation IH Projects will receive 2.0 square feet of IAR for each square foot of affordable housing. The previous ratio of IAR bonus for preservation per square foot of low income housing preserved was 2.2 square feet.
C. Government-subsidized IH Projects (including new construction and substantial rehabilitation) will receive 1.25 square feet of IAR for each square foot of affordable housing. Of note: the same lower income housing units can be used to qualify an IH Project to receive both IAR and Lower Income Housing Tax Credits. They may also help to qualify a Project located in the 421-a Geographic Exclusion Area to receive 421-a Partial Tax Exemption Benefits, provided the IH Project meets the applicable 421-a affordability requirements.
2. In R10 Zoning Districts, IH Projects can utilize a range of public subsidies and remain eligible to receive a bonus ratio of 1.25 square feet of IAR for each square foot of affordable housing.
3. In R10 Zoning Districts, IH Projects are now permitted to carry permanent private debt, subject to certain requirements.
4. Affordable units created through the IH Program can now be either permanently affordable home-ownership or rental units. The permitted resale price of home-ownership units can increase at the rate of inflation (as defined by the Consumer Price Index) plus one (1) percent for the life of the development receiving Inclusionary Air Rights. A home-ownership unit must always remain affordable to households earning no more than one-hundred and twenty-five percent (125%) of the income limit set by the United States Department of Housing and Urban Development (“HUD”).
5. Rents for affordable units are to-be set at up to thirty percent (30%) of the applicable HUD income limit, but allowable tenant income can match wider HPD program standards.
6. Preservation projects in the R10 IH Program now can have an average rent roll affordable to households at or below eighty percent (80%) of HUD’s area median income. Existing tenants would be “grandfathered” while new tenants would be required to income-qualify.
7. IH Project unit size requirements now match the unit size requirements of the New York City Housing Development Corporation (“HDC”). Additionally, affordable units must either (a) have the same bedroom mix as the mix of other units in the development or (b) at least half of the affordable housing units have two (2) or more bedrooms, with no more than twenty-five percent (25%) of the affordable units smaller than one (1) bedroom. These distribution requirements can be waived if a financing program requires different size and bedroom mixes. Also, no more than thirty-three percent (33%) of the units on any floor must be affordable units unless sixty-five percent (65%) of the residential floors have at least one (1) unit of affordable housing.
8. In mixed-income buildings constructed with Inclusionary Air Rights from an IH Project, “rolling” (floor-by-floor) temporary certificates of occupancy (“TCO”) may be issued for the non-bonused portion of the building.
9. The Administering Agent is responsible for the rental of affordable units and annual income compliance, but not for building management, which is the responsibility of the Owner.
General Requirements of the IH Program
1. The IH Developer must file a “Lower Income Housing Plan” with HPD. The New York City Zoning Resolution provides that, in order to qualify as lower income housing, each unit must be occupied by a “lower income household”, which is defined within the Zoning Resolution as eighty percent (80%) of the income limit set by HUD for a household of that size.
2. HPD and the IH Developer then enter into a “Regulatory Agreement” which regulates the use and management of the IH Project. The IH Project must have its leasing done by a responsible “Administering Agent”, which must be approved by HPD (and is usually a not-for-profit organization). Before entering into a Regulatory Agreement, though, a number of requirements must first be met, including a satisfactory investigation by HPD of the principals of the IH Developer. This typically takes several months.
3. Before the issuance of the IAR, a restrictive declaration running with the land is recorded against the zoning lot which comprises the lower income housing, setting forth the obligation of the owner and all successors in interest to provide lower income housing in accordance with the Regulatory Agreement.
4. Once the IH Developer finds a buyer for off-site use of the IAR, the IH Developer notifies HPD that the IAR will be transferred to one or more “Compensated Developments” (i.e. within the same community district as, or within a half-mile radius of, such lower income housing).
5. In order for the New York City Department of Buildings (“DOB”) to approve construction plans for the Compensated Development which reflect the IAR attributable to the IH Project, prior to the IAR actually being issued by HPD, HPD must present a letter (the “HPD-DOB Letter”) certifying that: (a) a Regulatory Agreement has been entered into by HPD and the IH Developer and (b) a portion (or all, as the case may be) of the IAR to be produced pursuant to the Regulatory Agreement have been allocated to the compensated development.
6. Upon completion of the IH Project and lower income housing to the satisfaction of HPD, HPD issues a “Certificate of Completion of Affordable Units” and a “Certificate of Eligibility”, which set forth the total amount of IAR which will be issued that are attributable to such IH Project and lower income housing. Upon issuance of a TCO or Permanent CO (“CO”) by DOB for the IH Project and upon issuance of a Certificate of Completion of Affordable Units and a Certificate of Eligibility by HPD, DOB can issue a TCO or CO for the Compensated Development.
Please contact Alvin Schein at .(JavaScript must be enabled to view this email address) to discuss your project’s eligibility to either generate or to receive Inclusionary Air Rights, or to discuss conventional transfers of development rights by means of zoning lot development agreements and related instruments (the legal requirements for which have recently changed and which will be discussed in our next memo).