City officials have started to question a little-known program that gives developers credits for building affordable housing units. This story was published in Our Town on March 31, 2015.
New questions are being raised about an under-the-radar city plan that lets developers take advantage of an affordable housing program to generate valuable building bonuses.
Developers that apply to the Dept. of Housing Preservation and Development’s inclusionary housing program agree to build a certain number of affordable housing units in a given development project. For every square foot of affordable housing they build, developers receive from 1.25 to 3.5 square feet of “bonus floor area,” a zoning term that essentially translates to air rights – the valuable and versatile real estate commodity that can be kept in pocket and sold or used on a project where a developer wants to build big.
Those rights can then be either used by the developer at a nearby project, or sold off to other developers wanting to expand their own projects.
Manhattan Borough President Gale Brewer said the program has grown into a scandal.
“The current inclusionary housing program is deeply flawed, and too often provides developers with massive benefits in exchange for insignificant investments in affordable housing,” she said. “Right now on the Upper East Side, one developer has received roughly $60 million worth of air rights in exchange for constructing just two dozen units of affordable housing – this is a scandal.”
Brewer said the program needs to be fixed at the City Council level, and that with Mayor Bill de Blasio’s ambitious affordable housing agenda, now is the time to create sensible programs that benefit the community and contribute to economic diversity in the borough’s housing landscape.
Brewer said nearly 30 Manhattan elected officials joined her in writing a letter to City Hall urging the mayor to include “meaningful reforms” of the inclusionary housing program in the administration’s upcoming proposed zoning changes.
“It’s clear that right now, when the mayor is getting his affordable housing push off the ground, is the right time,” said Brewer.
According to an HPD spokesperson, there have been four off-site inclusionary housing program applications on the Upper East Side so far this year. Last year there were zero applications of this kind, while in 2013 there was one, said the spokesperson.
While the inclusionary housing program technically generates a floor area bonus, they function as air rights because they allow a developer to build on up to 20 percent more floor area than they would normally be allowed to.
“Inclusionary housing building bonuses are essentially transferrable development rights,” said Lonica Smith, a lawyer with Phillips Nizer, LLP who has handled several inclusionary housing program deals. “They’re very similar. What you’re paying for is that same square foot of buildable space.”
The value of these building bonuses depends on where they’re used, but in certain markets, including in pockets of the Upper East Side, they’re trading for around $500 per square foot.
Bob Von Ancken, chairman of Landauer Valuation and Advisory Services, a division of international commercial real estate giant Newmark Grubb Knight Frank, said inclusionary housing programs are one option among several that are attractive to developers for generating more floor area with which to build.
According to Von Ancken, the average sale price for transferrable development rights in Manhattan this year is $303.35 per square foot. But that average is skewed because it takes into account sales in all areas of Manhattan. A recent sale on the Upper East Side at 1st Avenue and East 88th Street went for $495.57 per square foot. The record TDR sale this year went for $503.32 per square foot to a receiving site at East 30th Street and Madison Avenue.
As for the uptick in inclusionary housing program applications on the Upper East Side, Smith said it could be that the 2nd Avenue corridor is becoming more attractive to developers due to the soon-to-be-completed first phase of the 2nd Avenue subway line, which will connect 63rd Street to 96th Street. The neighborhood is also rife with five- and six-story tenement buildings, which are easy to acquire and incorporate into inclusionary housing programs.
Like Brewer, Upper East Side council member Ben Kallos is also concerned that developers are getting far more from these programs than what they’re giving back to the community, especially when the inclusionary housing program is combined with the controversial 421a tax break for developers that build affordable housing.
Kallos said while there’s been outrage over so-called poor doors, where affordable housing tenants have a separate entrance than their market rate counterparts, there should be more outrage over the “poor building.”
“There is very little difference between the poor door and the poor building,” he said.
Kallos believes that the inclusionary housing program and other initiatives designed to spur construction of affordable housing have not delivered on the promises that made possible their existence.
“Regardless of the intent of the original inclusionary housing program, the public approved of it and supported it because of the promise of affordable housing,” said Kallos. “Years later, we have not seen the affordable housing promised. Instead we have super-scrapers blocking out light and air at the expense of affordable housing.”
He’s also sensitive to how vulnerable 2nd Avenue is to development now that the first phase of the long-awaited subway project is wrapping up.
“Because of the 2nd Avenue subway we’re seeing a huge development boom along 2nd Avenue,” said Kallos. “All the rent regulated housing along 2nd Avenue is being warehoused by developers.”
As previously reported in Our Town, Icon Realty Management recently applied to the inclusionary housing program with a proposal to build 11 units of affordable housing on East 78th Street in exchange for 35,000 square feet of bonus building space. Icon is applying the bonus to a 200,000 square foot project on 80th Street and 2nd Avenue.
Extell Development, in a similar off-site inclusionary housing application, wants to build 25 units of affordable housing at 92nd Street and 2nd Avenue in exchange for a whopping 115,000 square foot building bonus. Extell has not yet identified a receiving site for the bonus or indicated whether they’d put all or part of the bonus on the market.
Members of Community Board 8’s housing and zoning committees have previously expressed fear that a development boom along the corridor could further exacerbate challenges faced by small businesses on 2nd Avenue, which have been hampered by major construction operations in connection with the subway project.
Smith said that such a thing is possible.
“I wouldn’t be surprised to see a lot of smaller mom and pops being pushed out and replaced with luxury condos,” added Smith. Especially on the upper Upper East Side, “there is certainly room for gentrification. There’s a lot of smaller older, buildings.”