How Do Inclusionary Housing Zoning Laws Affect Real Estate Development in New York?

What is Inclusionary Zoning?

Inclusionary zoning incentivizes New York real estate developers to include a certain number of affordable housing units in new housing developments. Cities that are growing often prioritize providing affordable housing to new homeowners. However, policymakers often fear that the requirements for affordable housing may be too stringent and could become a barrier to developers before the houses are ever built.

Zoning laws were created to organize urban spaces, regulate land use, foster urban growth, and promote public welfare. Zoning regulations are categorized into residential, commercial, and industrial areas, each with specific rules regarding structure size, permitted activities, and density. In New York, zoning laws significantly influence property values, neighborhood character, and the possibilities of real estate development. Among the recent changes to zoning regulations in New York are initiatives for affordable housing.

To address New York City’s housing crisis, new zoning amendments encourage the development of affordable housing units. Policies such as the mandatory inclusionary housing initiative require real estate developers to include a certain percentage of affordable units in new developments or significant expansions in designated zones.

What is New York’s Mandatory Inclusionary Housing Program?

The New York City inclusionary housing program is a collection of zoning law tools and methods designed to incentivize the creation of affordable and inclusionary housing within new residential developments. The NYC program primarily operates in areas of the city that have been rezoned to allow for higher-density residential developments where the city would like to encourage a diversity of affordable and market-rate housing.

New York City’s inclusionary housing program has two main components: mandatory inclusionary housing (MIH) and voluntary inclusionary housing (VIH).

The VIH program permits real estate developers in certain zoning areas to voluntarily set aside a portion of their new residential area for affordable housing. In exchange for doing so, the developers receive a density bonus, which typically allows them to build 20% more floor area than they would generally be permitted to under zoning rules. The bonus can be a significant financial incentive in a city such as ours where space is limited.

The MIH program, introduced in 2016, is a stricter version of inclusionary housing. Unlike VIH, which is optional, this other program may be required in areas rezoned for higher density. When rezoning triggers the MIH program, real estate developers must abide by the rules and set aside a certain percentage of residential floor area for affordable and inclusionary housing.

Do NY Real Estate Developers Benefit from Inclusionary Housing?

The benefits and financial implications of New York City’s inclusionary housing program vary depending on the specifics of the real estate project and the market conditions at the time. In many real estate development matters, developers stand to benefit financially from the incentives offered by the program.

One of the most direct financial benefits for real estate developers is the legal right to increase their new developments’ total floor area ratio through the density bonus. With more floor area, more units are sold or rented, which can result in higher revenue. In a city such as ours, where space is at a premium, the ability to build additional housing can significantly increase the return on investment.

Real estate projects that comply with inclusionary housing requirements will typically face fewer legal obstacles in the approval process, particularly in regional areas rezoned with MIH requirements. This results in fewer delays and carrying costs.

Real estate developers participating in the inclusionary housing program could benefit from property tax abatements and other financial subsidies. The city or state sometimes offers financial assistance to develop new affordable units.

Finally, including affordable housing and real estate development can improve relations with community boards and potentially limit opposition to the new project. This can be useful in neighborhoods or communities with contentious new developments.

What Are the Challenges to Enacting the Inclusionary Housing Policies?

Few housing policies have attracted as much controversy in recent years as inclusionary housing. There are many objections and complaints about inclusionary housing policies in New York.

Examples include the following:

• There is a possibility that inclusionary housing could hurt nearby home values
• Some argue that inclusionary zoning laws unfairly placed the burden of economic integration on housing developers
• In some instances, inclusionary zoning ordinances fail to inspire real estate developers, and those developers may build fewer units
• There is a complaint that, by reducing the number of new homes for some buyers, inclusionary policies may increase the cost of market-rate housing in the community
• Inclusionary zoning policies sometimes appear to increase the cost of new developments, which may be passed on to market-rate buyers on the home market

So, while inclusionary housing zoning laws offer significant incentives to developers, they also present unique challenges. Affordable units usually generate less revenue, which can affect overall profitability. Real estate developers must analyze whether the density bonus and other financial incentives can offset the lower rent and sale prices of affordable units.

Does Inclusionary Housing Prevent Real Estate Development in New York?

Inclusionary housing programs could prevent new development and, therefore, make New York’s housing problem worse.

Some evidence suggests that it’s possible to set affordable housing requirements so high, to make them so strict, that developers choose not to build, and landowners may decide not to sell. If such a thing were to occur, the result would be a reduced housing supply and higher housing prices. The data also suggests, however, that the incentives and flexibility of inclusionary housing programs can allow for affordable housing projects without negatively impacting market supply or prices.

By studying other cities, such as Boston and San Francisco, research suggests that inclusionary requirements sometimes negatively impact market prices and sometimes do not.

Schedule a Free Consultation with Our Experienced Real Estate Attorneys Today

There are many reasons to support ideas like inclusionary housing, especially for cities like ours, which can be difficult for many to afford. Inclusionary housing could also prevent gentrification and displacement. Despite the upsides, there are many challenges to inclusionary housing zoning laws, making things more difficult for real estate developers in and around New York City.

To ensure that your real estate development and transactions comply with New York law and that you are getting all the benefits and assistance you stand to receive, it is strongly recommended that you work with experienced real estate law attorneys.

Rolo Law has extensive experience representing real estate legal issues, including zoning laws. We would be proud to represent your rights in pursuit of the optimal outcome for your real estate development. To learn more about our legal services, contact us today to schedule your free initial consultation. You can reach us at 845-668-4774.