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White Paper - Inclusionary Air Rights

by Andrew Setiawan and Tianran Xu

VIH, or Voluntary Inclusionary Housing, states that a development may receive a density bonus by providing affordable housing in the form of new construction, substantial rehabilitation, or preservation. Inclusionary air rights generated from the bonus can also be transacted and sold to developers. This mechanism benefits both parties as the proceeds from the sale of development rights can be used to pay for the renovation to ensure a long-term preservation of affordable housing while the air rights bought by developers can be used to unlock density bonus. Affordable unit rents are capped at 80% of Area Median Income (AMI) – approximately $30/square feet/ year – and typically 20% of the residential units must be affordable to maximize the density bonus. However, the density bonus shall only be used to increase residential floor area and is only applicable for Inclusionary Housing Designated Areas (IHDA), R10 Districts, and Special Districts in the city. There are two different project types: on-site and off-site projects. On-site projects generate the bonus by providing the affordable units in the same building or development. For off-site projects, there will be a Generating Site and a Receiving Site, as the bonus is not located in the same building. Both Generating and Receiving Sites must be in the same Community District or within 0.5 mile if in an adjacent District.

Commonly, affordable housing owners generate the inclusionary air rights through project preservation, which can then be marketed to developers who are willing to purchase them. The transfer to a Receiver property can occur once the certificate from the Generating Site is approved by Housing Preservation and Development. Without public funding, a preservation project in R10 districts outside IHDA can generate 2.0 square feet for every 1.0 affordable square feet. New construction or preservation projects increase the compensation to 3.5 square feet per 1.0 square feet affordable floor area. For projects with public funding and/or located inside IHDA, the generating bonus is 1.25 square feet per 1.0 affordable square feet. The amount of inclusionary air rights that 23 / a site can receive depend on the zoning district. The calculation is as follows: subtract the Base Residential FAR from Max Residential FAR and multiply it by the lot area. Example: A 10,000 square feet lot on a R8A IHDA district has a Base Residential FAR of 5.40 and Max Residential FAR of 7.20. The amount of inclusionary air rights it can receive shall be (7.20 – 5.40) x 10,000 = 18,000 square feet.

Off-site inclusionary air rights transactions are a widespread practice in prime areas throughout the city, including Core Manhattan, Downtown Brooklyn, and Brooklyn Waterfront. The first type of actively traded Receiving Sites are sites in IHDA which are mapped in Chelsea and Williamsburg. These two neighborhoods fetch some of the highest condominium sell-outs and fair-market rents in their respective boroughs. Chelsea has its own Special West Chelsea District (WCH), in which substantial portions of the area are zoned under IHDA. Here, Receiving Sites can benefit from the floor area bonus without the hassle of providing affordable units on site. Affordable units must have similar standards to the fairmarket units which can be a big drawback for developers due to the rent caps. Buying inclusionary air rights solves this problem, especially in expensive neighborhoods like Chelsea where the market favors luxury condominiums and exclusivity. The size of the transactions in Chelsea range from under 1,000 square feet to over 35,000 square feet, like the project located at 529 West 29th Street. In Brooklyn, Williamsburg represents the largest number of Receiving Sites due to the enormous size of areas zoned under IHDA, especially on the waterfront. The Receiving Sites vary from small boutique condominiums to large scale waterfront developments. For example, 2 North 6th Place purchased 104,000 square feet of inclusionary air rights back in 2014. Recently, in 2018, 30,000 square feet of inclusionary air rights were purchased by a development at 280 Kent Avenue.

The second type of Receiving Sites are sites zoned in R10 districts (or equivalent) that are popular in Downtown Brooklyn, Central Park South, and Midtown East. Purchasing inclusionary air rights is valuable for ultratall luxury development in these areas, as developers need not pursue an assemblage process or zoning lot merger, which may take years to complete. Extell’s One57 on Billionaire’s Row, for example, purchased 25,624 square feet of inclusionary air rights in 2007, which pushed its building height to 1,345 feet. Notably, Downtown Brooklyn has a large pool of unused inclusionary air rights with the Ingersoll Senior Residences alone holding 100,291 square feet of air rights to support future developments.

Pricings of these air rights vary throughout neighborhoods but generally cost approximately 60-70% of the price per buildable square foot of the area. This price is determined by the delicate relationship between supply and demand and the real estate cycle. Supply and demand are also dictated by the pre-dominant zoning district and IHDA zones in the community district. Areas with high density zoning and large areas of IHDA zones will be likely to see the dynamics at play more actively. In conclusion, the program has been helping the city to preserve affordable housing and has helped to fund future renovation projects. In return, it is also aimed to attract new developments and investments that will bring economic benefits to the city. However, experts are still evaluating the program’s effectiveness, and whether it achieves the goal of bringing inclusiveness to neighborhoods as a whole has yet to be seen.