De Blasio Admin. Report on Housing Options Irks Advocates

When Mayor de Blasio negotiated the passage of the mandatory inclusionary housing policy in March of 2016, he promised that the city would conduct a study to “identify even more tools to reach New Yorkers with quality jobs and affordable housing,” as a spokesperson for the mayor told Gotham Gazette last year.

That long-awaited study was quietly released earlier this month. It does not explore a range of potential tools to meet the objectives of good jobs and deeper affordability, but rather focuses specifically on analyzing—and ultimately, spurning—a proposal from the Real Affordability For All coalition (RAFA) to create a Floor Area Availability Bonus (FAAB) that could be applied in conjunction with mandatory inclusionary housing. RAFA, a coalition of tenant, community, and labor organizations rejects the city’s conclusions and the assumptions of the report.

RAFA had proposed that in addition to the Mandatory Inclusionary Housing policy, which requires that 25 to 30 percent of units in upzoned areas be rent-restricted, that developers could also voluntarily apply for an additional density increase if they agreed to more stringent regulations: a higher percentage of rent-restricted units at lower income levels, ensuring that 30 percent of construction work hours are completed by disadvantaged New York City residents with priority for those in the surrounding community, and the hiring of workers from state-approved apprenticeship programs.

RAFA also proposed that affordability requirements be tied to neighborhood incomes. In affluent neighborhoods, developers receiving the bonus would be required to ensure 100 percent of the housing was income-targeted with the help of city subsidy; in lower-income neighborhoods, developers receiving the bonus had to ensure 50 percent of the housing was income-targeted, while the other half could be market-rate.

The administration has long expressed concerns that FAAB would not pass legal muster. The recently released report concludes the same, for multiple reasons. The study was conducted by BAE Urban Economics, the same firm that completed the original financial feasibility study that undergirds the administration’s mandatory inclusionary housing policy. (According to Politico, the administration released a bid for the study but no one but BAE responded.) The law firm Carter Ledyard & Milburn LLP also assisted with the report’s legal analysis.

BAE concludes that mandatory inclusionary housing already gives away the maximum appropriate density for each neighborhood and that it’s impossible to give away any more density through an added density bonus.

It also concludes that tying local hiring and apprenticeship requirements to zoning would be vulnerable to a lawsuit. While government bodies are allowed to impose certain requirements on projects they fund or that use public land, when the city acts as a regulator of the private market, it is more likely to face constitutional challenges.

There are no judicial precedents involving a voluntary zoning bonus tied to local hiring or apprenticeship requirements, but the report describes a case in which a court ruled that an extra benefit couldn’t be granted to locals because such treatment would constitute discrimination against out-of-state residents. The report also argues that tying local hiring to a zoning bonus might be outside of New York City’s zoning powers, which are a function of state law—a conclusion RAFA disputes.

Last but not least, the report says that it is inadmissible to require 100 percent affordability through a density bonus because “a zoning ordinance cannot commit the City to particular forms or amounts of public subsidy.” RAFA has taken issue with this conclusion, noting that the 20 to 30 percent of units mandated under the current mandatory inclusionary housing is not feasible without subsidy in some rezoning neighborhoods like East New York.

As for requiring 50 percent affordability, the report found this would only be financially feasible for developers building high-rises under strong-market conditions. The report notes that in order to avoid constitutional challenges, the city has sought to create a policy that could be uniformly applied throughout the city. And it notes that, according to its 2015 report, strong market conditions “in 2014 applied to just portions of Manhattan.”

This analysis does give readers a sense of what is lost under the current mandatory inclusionary housing policy. The study reveals that, with tax credits, developers building high-rises in strong markets could afford to set aside 50 percent of their units at a mix of lower income levels between 30 percent AMI, or $25,770 for a family of three, and 80 percent AMI, or $68,720 for a family of three.

In contrast, under the current policy, a rezoning in any part of the city is only required to provide 20 to 30 percent of units at rent-restricted rates, and in no situation does the city require units for households making less than 40 percent AMI, or $34,360 for a family of three.

The financial feasibility study is based on the same data used in the 2015 BAE report, which used a high estimate of developer costs “to account for union wages,” though not all projects will make use of union labor. It’s also unclear how these financial feasibility results would differ if the report used the new 421a program (the analysis uses the program that expired in 2015). Some projects might be less feasible if the Trump administration’s tax reforms continue to undermine the value of the Low Income Housing Tax Credit program.

RAFA has taken issue with the report’s assumptions and its framing. The coalition argues that the city, rather than take the coalition’s proposals seriously, has provided cover for a policy designed with input from, and ultimately to the advantage of, housing developers. But the city says it shares RAFA’s goals of deeper affordability and better jobs, but thinks the zoning code is not the right way to achieve them.

“The city is deeply committed to building and preserving more affordable housing, while also promoting—and indeed requiring on city projects—local hiring and training to address both sides of the affordability equation,” a spokesperson for the city said in an e-mail to City Limits. “Mandatory Inclusionary Housing isn’t the only vehicle to meet all of our goals, but it remains a powerful tool to gain more affordable housing citywide.”

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City Limits also had some questions about the report’s findings. Here are a few of the questions we asked City Hall and a summary of their responses.

1. Are you sure there’s no room for a bonus? The report states that mandatory inclusionary housing “was sized at the maximum density appropriate for the neighborhood,” and that it’s therefore infeasible to give away more density through a FAAB bonus. In the past, however, the Department of City Planning has said that mandatory inclusionary housing is triggered when the city approves a “significant” increase in density—not necessarily the maximum increase in density.  This is the understanding of many people, including Speaker of City Council Melissa Mark-Viverito, whose East Harlem Neighborhood Plan proposes increases to density that are the minimum to trigger mandatory inclusionary housing, not the maximum possible densities for the district. If it’s true that mandatory inclusionary housing is triggered by a “significant” increase in density, couldn’t additional density be given away through FAAB?

City’s response: It’s true that upzonings that trigger mandatory inclusionary housing won’t necessarily be up to the maximum density possible for the area. But the mandatory inclusionary housing policy as a whole is based on BAE’s financial feasibility models, which the city says looks at the maximum density appropriate for different kinds of neighborhoods while assessing how much affordable housing could be required without making the project infeasible to a builder. Put simply: the city says developers will only want to build if they are given something near to the maximum appropriate density through mandatory inclusionary housing.

2. Why one-size-fits-all? The report says that the city has tried to design a zoning policy that works across all geographies in order to withstand constitutional challenges. Can you explain more what constitutional challenges? Doesn’t the existing mandatory inclusionary housing policy provide for some geographical variation? (For instance, only City Councilmembers outside of district 1 through 8 of Manhattan are allowed to pick the workforce option, in which 30 percent of the housing is affordable to families making up to $98,785.) Isn’t the 421a tax credit also geographically tailored? If both mandatory inclusionary housing and 421a allow geographic variation, why couldn’t a voluntary bonus density program also allow for geographic variation?

City’s response: The city reiterates the problems with the FAAB policy explained in answer to question one.

3. Are there ways to avoid the “out-of-state discrimination” problem? The report notes that while it’s unconstitutional to discriminate against residents of other states, states are “allowed to discriminate against or among their own citizens” when it comes to local hiring provisions. But the report argues that crafting a policy that prefers certain local residents over residents of other parts of New York wouldn’t be easy to administer or useful (i.e. a developer could still fetch a bunch of New Jersey workers for their project).

RAFA still thinks a policy that prefers locals over other New Yorkers could be useful. The coalition argues that many other cities with local hiring requirements avoid constitutional challenges by crafting the law to discriminate only against other workers in the same state, and that enacting such a policy could at least be a first step toward creating an improved local hiring program that does exclude out-of-state workers. How do you respond to this argument?

City’s response: The city notes that RAFA’s ideas were studied and stands by its conclusions in the report.

4. Do we know for sure it’s not in the city’s powers? The report says that while the city is allowed to use “incentive zoning”—bonus density—to provide “physical, social, or cultural benefits,” there are legal reasons to believe these must be tangible physical benefits and could not include labor standards.

RAFA argues that there is no case law to prove that local hiring and apprenticeships is not a social benefit and that the report makes an unwarranted assumption. How do you respond to these arguments?

City’s response: The city notes that its conclusions are in the report.

5. What about at least requiring a “good-faith effort”? The report notes that Los Angeles already has a zoning ordinance that requires developers applying for a zoning change make a “good-faith effort” to hire locally. The report writes, “Because these are ‘good faith’ requirements they probably do not raise the same constitutional issues as the FAAB would.'” Why doesn’t the city explore attaching the same requirements to zoning in New York City? The city already requires that any housing projects receiving more than $2 million in city subsidy make a best faith effort to use the HireNYC program, so wouldn’t it be easy to extend this requirement to zoning?

City’s response: The city is still concerned that tying good-faith-effort policies to zoning would be perceived as “regulating” the private market and be subject to a court challenge. And (contrary to the BAE report), the city notes that the city of Los Angeles is actually already facing a federal lawsuit on the grounds that its policy discriminates against out-of-state residents.