Was MIH a Mi(h)stake?

Over the past two weeks, we’ve explored how New York City previously fulfilled the need for affordable housing and how the city plans to fulfill that need. This week, we’ll shift gears to discuss a government-sponsored program that currently supplies high-end, affordable homes to qualifying New Yorkers in upscale neighborhoods across the city.

In 2016, then-Mayor Bill De Blasio signed Mandatory Inclusionary Housing into city law. The proposal aimed to include low and moderate-income New Yorkers in the city’s high-end development boom in the mid-2010s. The law requires developers to match a percentage of units’ rents to income levels below local medians in newly built residential buildings when the site has been rezoned. When developers or local residents ask the City Council for permission to use a site for a different purpose than originally intended, any new residential properties over 10 units must include new affordable housing.

Sometimes, entire neighborhoods are rezoned — SoHo in Lower Manhattan and Gowanus in North Brooklyn both transformed massive swaths of neighborhoods into mixed-use space with residential buildings in mind. Under Mandatory Inclusionary Housing rules, developers constructing new buildings in those areas would be on the hook for supplying affordable housing. When plans to convert vacant office space into residential space begin to fly, sites may need to be rezoned and therefore (you guessed it) include new affordable housing. If developers don’t want to include it on their new site, they’re required to build more units on a different site somewhere else. Given New York City’s high land cost, it’s not a very popular option.

So, how many new units do new buildings need to include? Given that developers didn’t have much of a choice on including affordable homes, the city was kind enough to give them options. Those are as follows:

Option One: 25% of units can be priced for individuals making 60% of the area median income, while another 10% are held for people making 40% of the area median income.
Option Two: 30% of units can be priced for individuals making 80% of the area median income.
Option Three: 20% of units can be priced for individuals making 40% of the area median income.
Option Four: 30% of units held for people making 115% of the area median income, with 5% of units reserved for people making 70% of the area median income, and an additional 5% of units reserved for people making 90% of the area median income.

So, it’s a balancing act. The developers must balance their profit with assisting the public — how much market-rate tenants will pay, the profit they’ll make from them, and how much space they’ll be willing to hand over to tenants paying a lower cost.

Let’s make this a little easier with a hypothetical, shall we?

You’re a rich developer. You’re sitting in your Midtown office, you’re being fanned with a palm, fed grapes…I’m kidding. Partially. But either way, there’s an old, dilapidated building in SoHo. It’s an old factory, then it transitioned to artist lofts in the 1980s. Now, because of a pervasive rat problem and flooding from recent storms, the city condemned the building and shuffled the last rent-stabilized tenants out. A real estate broker places the building on the market, the first words of the listing description read “calling all developers!”

You pounce! How could you not? It’s a perfect combination — you can tear down a dilapidated building and develop the newest, hottest apartments in one of the city’s most desirable neighborhoods. You crunch the numbers, see the dollar signs, call the broker, and start negotiating loans. You tour the site (trying your best to ignore the rats) and envision the fancy gyms, lounge spaces, and sun-drenched apartments. You’re knee-deep reviewing plans with your architect when you receive an unexpected call…from the local City Councilwoman.

The Councilwoman explains that you’re proposing a new building that’s over 10 units. Since you’re in rezoned SoHo, you need to add affordable housing in the project. You push back, asking if there’s any way you can be the one exception…just this once! (You did give her $1,000 during a competitive primary, so it’s worth a shot, right?) She says you could build even more affordable housing on a separate piece of land that you’d need to buy — not happening. So, you call up your lawyer.

Your lawyer helps you weigh the options — Option Two takes up the least amount of space, but you’d make more money under Option Four. Option One takes up more space than Option Three, but Option Three requires deeper affordability and therefore less profit. After a few pro-con lists, you settle on Option Two — 30% of your units will be set aside for people making 80% of the area median income. Under Option 2, you could charge $2,100 for a studio apartment or $3,000 for a three-bedroom — roughly a third of 80% of the area’s median income for a single person and a three-person family, respectively. There’s no way around it unless your building contains fewer than ten units or you can prove including the units would undue hardship.

Remember when you were with the architect earlier? Simpler times.

You’d think that this would yield plenty of affordable housing, given the strict mandates in place during the largest development boom in a generation. However, a June 2020 report by the Manhattan Institute found that only 2,065 units had been provided by the program. 6,000 were approved but never built. Keep in mind, this was a major portion of then-Mayor De Blasio’s 2014 goal of 25,000 new affordable homes per year. It’s clear that more mechanisms are needed to combat the affordability crisis plaguing New York City. Whether it’s City of Yes, remakes of 421a, or an entirely new initiative, the city deserves more solutions.

This week’s edition of “Hits and Misses'' will seek out the best and worst of the buildings constructed under Mandatory Inclusionary Housing.

I’ll admit, our “Hit” of this week hasn’t been built yet. But, the renderings issued in June 2023 for 277 Canal Street in SoHo will transform a small commercial building into a cast iron midrise fitting the character of the neighborhood. 25% of its units will be affordable — developers likely selected Option One. It’s close to transit, architecturally pleasing, and likely to include high-grade amenities for both market-rate and affordable tenants.

Our “Miss” of this week was the first development constructed under Mandatory Inclusionary Housing. Hopefully, developers and the city have learned a few things since topping off One Flushing in Queens in 2019. The apartment building sits directly next to the Flushing Main Street station serviced by the above-ground LIRR. Many residents of affordable and market-rate developments have complained about noise and air pollution from nearby trains, it’s unlikely One Flushing is much different.

See you next week!

Was MIH a Mi(h)stake?

Clearing Cubicles for Condos

Saying “Yes” to the “City of Yes”