Report Sees de Blasio’s ‘Mandatory Inclusionary Housing’ Falling Short

The de Blasio administration’s mandatory inclusionary housing mechanism became law in 2016. When the mayor ran for president last year, it was one of the top accomplishments he cited: On his watch, his campaign wrote, New York “adopted the strongest Mandatory Inclusionary Housing policy in the nation, requiring developers to build affordable apartments.”

Nearly four years after it was created, with the city having started construction on more than 43,000 housing units under the mayor’s housing plan, only some 2,000 units have been created through the MIH requirement.

A new Manhattan Institute report, “De Blasio’s Mandatory Inclusionary Zoning Program: What Is Wrong, and How It Can Be Made Right” released Thursday says the  program “reflects a fundamental failure” due to restrictions and conditions that have limited the use of public subsidies and tied the policy to rezonings in less affluent communities rather than New York’s strongest housing markets.

According to Department of Housing Preservation and Development (HPD) data from December, some 2,105 housing units have been created under the mandatory inclusionary housing program to date. Manhattan has seen 449 units, the Bronx 847, Brooklyn 476 and Queens 333. And only around a quarter (498) of the apartments built under MIH have been in the neighborhoods rezoned by the administration precisely to create new density: 250 in Far Rockaway, 102 in East New York and 146 in Jerome Avenue. Data is not available yet on MIH’s uptake in East Harlem, Inwood and Bay Street.

Inclusionary Housing in NYC

The city has long tried to piggyback income-targeted housing on private residential development. One well-known if controversial tool for doing so is the 421-a property tax exemption, which since 1985 has required developers in at least some parts of the city to include affordable units in order to get full tax benefits. The Voluntary Inclusionary Housing policy (VIH), enacted in 1987, allows development on land zoned R10 to receive a density bonus in return for the new construction, substantial rehabilitation, or preservation of permanently affordable housing. When Mayor Bloomberg launched a second major affordable housing push late in his first term, it included a modestly expanded voluntary inclusionary housing program.

In 2016, as the de Blasio administration pursued its initiative to create and preserve 200,000 affordable housing units (that goal has since been increased to 300,000)–and to do so partly by rezoning a dozen or more neighborhoods—the City Council passed the Mandatory Inclusionary Housing program requiring that developers benefiting from an upzoning make a percentage of units permanently affordable to families at specified income levels. 

At the time of passage, MIH was expected to produce 12,000 of the 80,000 newly built units under the housing plan, which at that point ran through 2024. (The other 120,000 units in the original de Blasio housing plan were to be achieved through preservation, not new construction. The mayor’s housing plan has since shifted to a 300,000-unit goal with a 2026 end date.)

Generally, Mandatory Inclusionary Housing applies in two scenarios. The first is when a developer wants to create a bigger residential building or expand an existing residential building or convert a non-residential building to apartments that is not permitted under the current zoning. If the project will include the creation of more than 10 units, or the creation of more than 12,500 square feet of floor area, the developer is required to follow the rules of MIH, ensuring a percentage of units are below-market. The policy applies to both condominium and apartment developers.

In the second scenario, the city triggers MIH through a neighborhood rezoning, if the rezoning would allow a “significant” increase in the permitted residential development  for property owners, any developers building in the rezoned area must comply with MIH requirements in the future. 

In the Mandatory Inclusionary Housing program, there are four sets of affordability requirements. During a neighborhood rezoning, the City Council and City Planning Commission decide which options will be available within the district. However, if more than one option is presented in a particular neighborhood, it is left up to the developer to decide which option to use when building within that rezoning area. 

If it is a single property where MIH applies, then the applicant–whether it’s a developer or a city agency–gets to pick the option they’ll use.

Option #1 requires developers to set aside 25 percent of units for families making an average of 60 percent AMI, or $57,660 for a family of three. It also requires that at least 10 percent of the total units must be set aside for families making an average of 40 percent of the Area Median Income (AMI) or $38,440 for a family of three. 

Option #2 requires developers to set aside 30 percent of units for families making an average of 80 percent AMI, or $76,880 for a family of three.

The Deep Affordability Option, or Option #3, requires that 20 percent of the rent-restricted units be affordable to families making 40 percent AMI, or $38,440 for a family of three. 

Option #4, also known as the Workforce Option, requires that 30 percent of the rent-restricted units are affordable to families making 115 percent AMI or $89,355 for a family of three, with required percentages at several different income bands. 

Developers using the Workforce Option cannot use public funding. And Options #3 and #4 cannot be applied by themselves—they must be selected alongside one or both of the first two options.

Explaining MIH’s shortfalls

The Manhattan Institute report report found two MIH buildings that have actually been completed: 869 East 147th Street, in the Mott Haven section of the Bronx and another building in Flushing, Queens with 83 MIH units (232 units overall). He found 34 MIH development projects with building permits were not completed and two did not even have building permits. Author Eric Kober said of the 36 sites (completed or under construction) 30 are 100 percent affordable and are subsidized by city, state and federal programs. Kober says many of these developments also have tax-exempt mortgage financing from HDC and use federal low-income housing-tax credits.

The report says there were several factors that account for why the city has produced a relatively small amount of MIH housing units. 

Kober says MIH program design was flawed because the goal was to increase the percentage of permanently affordable units, “However, no development subject to such requirements could achieve financial feasibility without tax exemptions.” Kober says there were changes made for real estate tax exemptions but they were limited to new rental housing construction while “conversions of nonresidential buildings to residential use were generally ineligible for tax exemptions, and none have been granted permits under MIH.”

Another flaw the report highlighted was how the city focused its rezonings largely on low-income communities where public funding would be necessary rather than targeting high-income communities that “might support MIH affordability requirements for new rental buildings without public subsidies.” 

The report says the de Blasio administration created less housing than its predecessor: “The Voluntary Inclusionary Housing (VIH) program has continued to operate where it applied at the end of Bloomberg’s administration, and 8,476 permanently affordable VIH units have been approved during de Blasio’s tenure. Unlike MIH units, many VIH units are located in the city’s strongest housing-market areas, and, while they qualify for tax exemptions under state law, they do not receive additional public subsidies.” 

The administration’s focus “is partly attributable to well-funded and well-organized opposition to rezoning in more affluent areas, as well as the mayor’s deference to City Council members who oppose rezoning in their districts,” wrote Kober, who retired in 2017 as director of housing, economic and infrastructure at the Department of City Planning.

To Kober, the very name of the program reflects a misconception, since all inclusionary zoning is voluntary. “The ‘mandatory’ in MIH is really a misnomer. Building an apartment building is an investment, and it requires capital. No private, profit-motivated entity will make this investment unless there is a reasonable expectation of an acceptable rate of returns,” says the report.  

Kober says housing types such as condos, for manufacturing or commercial to residential conversions, for “payment-in-lieu” buildings of 11–25 units, and for developments with affordable units off-site. In all these cases, market-rate units are not eligible for tax exemptions. 

“Developers need a large increase in density to justify applying for a zoning change, since 25 percent or 30 percent of any new development will be affordable housing and generate little profit,” the report reads. 

The report recommends the city rezone the residual manufacturing zones in Manhattan, where housing markets are very strong but no new housing is permitted, such as Soho, Noho, and parts of Midtown South neighborhoods. 

The second recommendation is to “rezone larger manufacturing-zoned areas in strong housing-market areas in Brooklyn and Queens, such as  parts of Gowanus, East Williamsburg, and Long Island City” which no longer serve as industrial business zones. 

Thirdly, the report recommends the city take advantage of the potential of central and southern Brooklyn such as Midwood, Bensonhurst or Bay Ridge, where there is capacity for housing growth.

Lastly, the report recommends amending MIH to include all types of housing, including conversions, small buildings, condominium buildings, and buildings that provide affordable housing off-site,and suggests that the state “should give the city authority to tailor tax-exemption programs to be consistent with affordable housing goals.”

MIH and double-dipping

Housing advocates who fought to bring MIH into law and amend it to work for low-income communities say MIH could work if applied correctly. They don’t believe developer hardship is the primary reason the program has generated relatively few units.

Although developers do not receive tax exemptions directly under the MIH program, many developers “double-dip,” according to Chrisopher Walters, the Rezoning Technical Assistance Coordinator for the Association for Neighborhood & Housing Development (ANHD). 

“MIH is required by zoning, but that then does not preclude developers from taking city subsidy and from either building more affordable housing or from taking subsidy as well. What [developers] can do with that subsidy is to a certain extent, they can double dip,” Walters says. “They can count the MIH affordable units as fulfilling both the subsidy requirements and the MIH requirements. The same goes for MIH and 421-A: They can get the tax exemption counted which requires a number of affordable units. They can count those same units as the ones that are required by MIH.”

Another flaw in MIH, according to Walters, is that like most affordable housing programs its income levels are mismatched to the needs of city residents. “The limitations that MIH has in these low-income communities is the affordable housing you’re bringing through the MIH [program] is out of reach for the median household in those neighborhoods,” said Walters. “And so the displacement effects are likely to outweigh any of the benefits of any affordable housing that MIH brings, especially for long-term residents.”

On one point at least–the notion that the success of MIH depends of what kind of neighborhoods are targeted for rezonings–the Manhattan Institute report concurs with what progressive housing advocates have argued. Walters says housing groups such as the Thriving Communities Coalition (which includes over a dozen advocacy groups such as ANHD, Chhaya CDC, Churches United for Fair Housing, and the Northwest Bronx Community & Clergy Coalition) have pushed for rezonings that are focused on income diversity in more affluent New York neighborhoods, “Basically getting the city to rezone high opportunity, higher income neighborhoods would really be the best place for MIH to be used as a tool without requiring subsidies,” Walters says.

MIH “is a way to get affordable housing without requiring government subsidy and the best way to do that would be to map MIH in high rent, high-income, exclusive neighborhoods,” he said.

“If [MIH] were to be mapped in Murray Hill in Manhattan, where you could do an upzoning that way anything that was built there would be required to have 20 to 30 percent affordable housing and the city could be achieved without putting in [additional] subsidy. And also get some affordable housing into very exclusive neighborhood when they do it,” he said. “When they map MIH in East New York by doing a rezoning, they bring can bring massive speculation to that neighborhood. Then [the city] is also creating affordable units through MIH that actually aren’t even going to serve the residents who live there because it does not meet their income.”