Practice Areas

Inclusionary Air Rights

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 “IH 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. A number of changes to the IH Program were passed into law as of July 29, 2009.

Home-Ownership Option

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.

Other Changes

1. In R10 Zoning Districts, there are now three (3) bonus ratios:
A. Privately financed new construction and privately financed 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-financed 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 low income housing units can be used to qualify an IH Project to receive both IAR and Low Income Housing Tax Credits. The same low income units may also be used to qualify a Project located in the 421-a Geographic Exclusion Area to receive 421-a Partial Tax Exemption Benefits, provided that there are sufficient affordable units to meet the 421-a affordability requirements.
2. In R10 Zoning Districts, IH Projects are now permitted to carry permanent private debt, subject to certain requirements.
3. 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 by the cumulative rate of inflation (as defined by the Consumer Price Index) but no less than one (1%) percent per annum 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”).
4. Rents for affordable units are to-be set at up to thirty percent (30%) of the applicable HUD income limit, but in certain cases, allowable tenant income can match wider HPD program standards.
5. 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.
6. 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 governmental 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.
7. 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.
8. 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 “Permit Notice”) 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.