What Attorneys Can Do To Help Clients Develop Sustainable Affordable Housing
3.25.2025
Sustainable affordable housing is a marriage between sustainable building practices and residences that are economically manageable for both the persons living there and their landlords. This article discusses what is affordable housing; what is sustainable development; and how attorneys can help their clients develop such properties by utilizing tailored financing, obtaining tax incentives and receiving zoning density bonuses.
With the current dearth of affordable housing throughout the United States, there are many developers seeking to satisfy this need. In fact, not only are residential projects being constructed to incorporate affordable units within market-priced apartments, but many municipalities are even offering incentives to landlords to retrofit non-residential buildings to residential ones.[1] However, because most developers look at their real estate assets as a business venture, the return on investment drives them more than anything else. In today’s real estate development climate, when a ground-up construction or a major building retrofit is envisioned, there will typically be an overlay of sustainable building components that will be incorporated into the new or reborn property. The job of a sustainable affordable housing attorney is to structure the project so that the contracts the developer signs with all parties – not just the design professionals and contractors but also tenants and service providers – work holistically for the project as a whole.
In order to understand how practitioners can assist their clients in developing sustainable affordable housing, it is important to review some basic concepts.
Affordable Housing
Affordable housing “is based on a household’s percentage of Area Median Income, which is set by the federal government on a yearly basis. Housing is considered affordable if it costs about one-third or less of household income and is regulated so the rent cannot go up dramatically over time.”[2] Area median income is a measure of affordability determined yearly by the U.S. Department of Housing and Urban Development, and it is used to determine eligible income levels for affordable housing. However, in high rent areas like New York, the figure is based on market rents rather than actual incomes. As such, New York City uses area median income levels to set income qualifications and rents for affordable housing.
Data compiled from the New York City Housing and Vacancy Survey conducted in 2021 revealed that (i) more than half of renter households (or just under 1 million households) were rent burdened (i.e., paying more than 30% of their income on rent) and one-third were severely burdened (i.e., paying more than 50% of their income on rent) and (ii) the overall vacancy rate for rental housing in New York City was less than 5%, with vacancies concentrated among high-cost rental units. In fact, the vacancy rate was less than 1% for units renting under $1,500, and the vacancy rate was not much better at 12.64% for units renting above $2,300.[3] Unfortunately, the numbers have not improved since then. Using the 2024 average median income calculations and maximum household incomes and rents for three-person households, the share of rent households earning between 0-30% average median income in New York City was 35.3% with 57.9% of that cohort being rent burdened.[4] Taking into account these figures, it is clear that affordable housing benefits the tenant by freeing up “their ability to spend more on other essential items.”[5] It benefits the developer by making available “lower-cost loan options”[6] and provides high rental demand during “severe economic turbulence.”[7]
Sustainable Building
When thinking of a sustainable building or a “green building,”[8] most of us picture a property that is built or retrofitted to be more energy- and water-efficient and has, among other benefits, the advantage of lower operating costs. And in many cases, that initially drives our clients to invest in green building practices. However, sustainable building practices encompass more than merely cost savings. With the advent of newly enacted legislation and property carbon limitations, developers also need to know how to comply with legal compliance issues relating to their properties. Governmental agencies like the Environmental Protection Agency have defined “green building” “as the practice of creating structures and using processes that are environmentally responsible and resource-efficient throughout a building’s life-cycle from siting to design, construction, operation, maintenance, renovation and deconstruction. This practice expands and complements the classical building design concerns of economy, utility, durability, and comfort. Green building is also known as a sustainable or high-performance building.”[9]
Originally, in the green building world, attorneys were mostly concerned with negotiating and drafting contracts that owners were executing with their design professionals and contractors. Today, that job has expanded exponentially. While still focusing on contracts to reduce energy and water consumption for the installation of LED lighting, EnergyStar equipment, low-flow water fixtures or those that are even waterless[10] (either to save money or to comply with legislation such as Local Law 97[11]), we now need to also be mindful of how our client’s property affects their occupants’ health. For example, when our clients use high minimum efficiency rating value (“Merv”) filters in their heating, ventilation and air-conditioning systems,[12] it reduces occupant health issues affecting their lungs, throat and nose and, in turn, reduces the risk of health-related litigation from those occupants.
Attorneys Understanding Their Clients’ Motivations To Provide Better Counseling for Development of Sustainable Affordable Housing
There are two basic motivations for most developers to go green: to satisfy current law[13] and avoid the imposition of a monetary penalty[14] by non-compliance of the sustainable requirements, and to satisfy existing or potential market demand.[15] In addition to these two factors, additional reasons to be sustainable include occupant health, lower individual tenant energy and water consumption and other factors that typically result in lower housing-related expenses and increased health benefits.
Since most clients that develop sustainable affordable housing do so primarily for the return on investment, their counsel should be aware that satisfying their goal is not merely achieved with a simple percentage of return on the capital invested, but also with other components of the economic puzzle for a project. Sustainable affordable housing often includes at least one “incentive” that can come into play, which helps increase the return on investment. It is these incentives that are critical for the practitioner to be aware of and advise their clients on what available benefits there are for energy-efficient systems and increased affordable housing.
For example, on the energy-efficiency side, during the period from 2023 to 2032, the 45L tax credit is available up to $5,000 per dwelling unit for new energy-efficient homes.[16] Similarly, the New York “City of Yes for Housing Opportunity” zoning resolution provides for “across-the-board 20 percent increase in residential floor area in higher density districts where 20 percent of dwelling units are ‘affordable.’”[17]
How Affordable Housing and Sustainable Development Have Similar Goals and Regulatory Requirements – What Attorneys Need To Know
Although all property owners appreciate the importance of reducing energy and potable water consumption, not only from a benefit to the world at large but also to their own individual economic bottom line, regulations enacted recently impact commercial and residential buildings. For example, in New York City, the Climate Mobilization Act of 2019 includes Local Law 97, which imposes strict greenhouse gas emission limits on all buildings 25,000 square feet and greater.[18]
“The [Climate Mobilization Act’s] primary purpose is to reduce the greenhouse gas emissions produced by buildings in New York City,”[19] and to ultimately result in New York City reaching its goal of utilizing 100% clean energy and carbon neutrality. By restricting large buildings’ greenhouse gas emissions, the Climate Mobilization Act is intended to further the city’s goal to “achieve carbon neutrality and 100 percent clean electricity.”[20] The act regulates not only office buildings, but also residential buildings, which contribute a large share of the city’s carbon emissions.[21] The centerpiece of the law is Local Law 97 of 2019,[22] which limits emissions for “covered buildings” including (i) buildings that are greater than 25,000 square feet; (ii) tax lots containing more than one building and that in the aggregate exceed 50,000 square feet; or (iii) more than one building held in condominium form that are governed by the same board of managers and that in the aggregate exceed 50,000 square feet.[23] Under limits beginning in 2024, a covered building must show, in mandatory annual emissions reports, that the building’s emissions are under the applicable limits.[24] Non-compliant buildings face a fine of $268 multiplied by the difference between the emissions limit for a given year and the emissions that the building reported.[25] For many buildings, compliance during the 2024-30 period will not be an issue, as it is estimated that only 20% of covered buildings will be out of compliance during that time.[26] However, this figure is estimated to exceed 75% by 2030, when compliance targets are set to increase dramatically.[27] Because compliance with the law could be a costly endeavor, cooperatives and condominiums should begin planning to ensure retrofits are affordable. The silver lining to the Climate Mobilization Act is that carbon emissions limits will make many residential buildings greener – and, usually, more energy-efficient.[28]
Affordable housing developers also look to property certification for third-party confirmation that their projects have satisfied objective standards. LEED, Green Globes[29] and Energy Star[30] are all well-known certifications available, but New York City’s Enterprise Green Communities Certification is another one.[31] On the Enterprise website, they state their certification is “the most widely adopted criteria in the sector with nearly 230,000 certified affordable housing units nationwide and 32 states – including cities such as New York City and Washington, D.C. – requiring or incentivizing those looking to secure funding to adopt our criteria. We are on track to impact 20,000 additional dwelling units each year.”[32]
However, Local Law 97 provides for alternate treatment for covered buildings that are also affordable housing projects.
How To Pay for Affordable Sustainable Development
When developers are considering sustainable affordable housing, their attorneys could assist them in advice on financing the project. The New York City Inclusionary Housing Program is one way.[33] Density bonuses translate to an increased return on investment.[34] Floor area bonuses for incorporating affordable housing and the participation in the program not only benefit the developer but also the community in which the project is located.[35] Explained in simple terms, “[t]he Inclusionary Housing Program promotes economic integration in areas of the City undergoing substantial new residential development by offering an optional floor area bonus in exchange for the creation or preservation of affordable housing, on-site or off-site, principally for low-income households. IHP regulations are contained in Section 23-90.”[36] And to futher illustrate this explanation is below, directly from the New York City Department of City Planning website.
Example of Inclusionary Housing Designated Area Bonus in an R8A District
A portion of an R8A district mapped along 4th Avenue in South Park Slope in Brooklyn Community District 7 has been mapped as an Inclusionary Housing designated area.
Recently $20 BB was
- The base FAR in most R8A districts is 6.02
- The base FAR in an R8A district within an Inclusionary Housing designated area is 5.40
- The maximum FAR for a development that provides affordable housing in an Inclusionary Housing designated area, including the bonus, is 7.20
Using the Inclusionary Housing designated areas program, the floor area may be increased by 1.25 square feet for each square foot of affordable housing provided, up to the maximum FAR – a bonus of 33% for providing 20% of affordable housing.[37]
The attorney representing the developer can counsel their client that, although the low-income units may reduce their return on investment, the extra floor space may, and usually will, more than make up for that reduction. The tie-in to green building is also economically beneficial. In 2011, regulations were enacted in New York City that affected affordable housing (both new construction and retrofitting existing housing stock of affordable housing).[38]
The Green Housing Preservation Program provides low- or no-interest loans to finance energy efficiency and water conservation improvements, lead remediation, and moderate rehabilitation work. The program is designed to assist small- and mid-size building owners improve building conditions and lower operating expenses to ensure the long-term physical and financial health of their buildings and to preserve safe, affordable housing for low- and moderate-income New Yorkers. This program is most suitable for multi-family buildings under 50,000 SF with high utility usage or costs needing energy efficiency improvements and that may also require some other rehabilitation.[39]
Numerous laws and executive orders also promulgate sustainable affordable housing, and a developer’s counsel should be familiar with them. For example, as early as 2012, New York State Executive Order 88 mandated state-operated buildings (including its public housing stock) had to reduce energy consumption by 2020.[40] The state green bond program furthers this mandate. For example, a recent green bond issue was made for the new construction or retrofit of affordable housing projects in New York State.[41]
New York State Gov. Kathy Hochul signed Legislation S. 2985C/A.6655A, the Housing Affordability, Resiliency, and Energy Efficiency Investment Act of 2023, which provided for New York City to make low-interest loans and grants for green affordable housing.[42]
Furthermore, as recently as June 3, 2024, New York City’s Green Fast Track Housing Rule became effective, which provides for small and medium-sized residential projects to be exempt from the time-consuming City Environmental Quality Review process. The new “Type II” exemptions are for those “low impact” projects not requiring involved environmental reviews and typically only a Phase I environmental site assessment. The Type II exemptions are for:
- R5-R10 Residential Zoning Districts where the development has fewer than 251 apartments and fewer than a combination of 25,000 gross square feet of non-residential uses of commercial space and 25,000 gross square feet for community space, with a combined limit of not more than 35,000 gross square feet.
- R1-R4 Residential Zoning Districts where the development has fewer than 176 apartments and fewer than a combination of 10,000 gross square feet of non-residential uses of commercial space and 10,000 gross square feet for community space, with a combined limit of not more than 20,000 gross square feet.
Aside from zoning boosts, another method to promote the development of affordable and sustainable housing is the use of the low-income housing tax credit, which is the federal government’s primary policy tool for encouraging the development and rehabilitation of affordable rental housing. The program awards developers federal tax credits to offset construction costs in exchange for agreeing to reserve a certain fraction of units that are rent restricted for lower income households. The investors of the low-income housing claim the credits in exchange for equity financing, which equity reduces the financing developers would otherwise need to secure.
In recent years, the low-income housing tax credit has been coupled with sustainability incentives. The Inflation Reduction Act of 2022 included the possibility for developers to combine this tax credit with either the Internal Revenue Code Section 48 energy investment tax credit or the IRC Section 45L new energy efficient homes credit. When combined, the full benefits of such energy credits could be realized without reducing low-income housing credit amounts.
Furthermore, the process of allocating, awarding and claiming the low-income housing tax credit has included sustainability features. At a high level, the administration of the tax credit program is typically carried out by each state’s housing finance agency. State housing finance agencies allocate credits to developers of rental housing according to federally required, but state-created, qualified allocation plans. While federal law requires that a qualified allocation plan give priority to projects that serve the lowest income households and that remain affordable for the longest period of time, states have flexibility in developing their plans to set their own allocation priorities and to place additional requirements on awardees.[43]
As a result, the qualified allocations plans of both New York State and New York City include sustainability requirements. New York State’s includes a 22-item list of requirements that are evaluated in determining whether to award the low-income housing credit to a project. One such item is whether the project’s design and construction complies with green and energy-efficient sustainable building practices and measures appropriate for the type of proposed building. Rehabilitation projects must take into account cost effectiveness based on the scope of reconstruction, and all projects must identify how green and energy-sustainable building requirements will be met.[44]
Similarly, New York City’s qualified allocation plan requires that all substantial rehabilitation and new construction projects certify under the Enterprise Green Communities Criteria Certification Overlay. As part of the tax credit application submission, applicants are required to submit a step 1 pre-build approval from Enterprise or LEED waiver. Moreover, all projects are required to complete a solar feasibility analysis as part of the Enterprise Green Communities Criteria certification process.[45]
Finally, New York City requires that applicants receiving allocations of the low-income housing tax credit must comply with the city’s benchmarking protocol, which, as its name suggests, enables the city to track building energy performance using automated data collection. The city has been requiring this since February 2016. The data is provided on an annual basis, which coincides with and satisfies Local Law 84 reporting requirements. Benchmarking provides data so that the city can underwrite energy savings and help it reach the goals of reducing greenhouse gas emissions by 80% by 2050.[46]
Conclusion
Although legislation requiring certain affordable housing thresholds could be an impediment to creating a new development, creative financing solutions could change the framework of the project. The sophisticated attorney counseling a developer client could explore with that client the availability of Property Assessed Clean Energy financing and New York State Energy Research and Development Authority grants that may make the project provide the return on investment to satisfy their clients. Similarly, any affordable housing beneficial financing would complement the above. Lastly, and perhaps most important, any zoning density bonuses and tax incentives (such as the low-income housing tax credit) available for either or both sustainable/affordable development provide what may be the solution to the existing affordable housing crises. Something needs to be done, and a clever practitioner could get their client over the sustainable affordable housing development finish line.
Richard J. Sobelsohn is senior vice president, legal, at Cohen Brothers Realty Corporation. He is an adjunct professor of law at Brooklyn Law School, Benjamin N. Cardozo School of Law, Columbia Law School and Fordham University School of Law, where he teaches Real Estate Transactions, Sustainable Building Law, Commercial Leasing and Condominiums and Cooperatives. Sobelsohn is a Green Globes Professional, LEED Accredited Professional, a Life Fellow of the American Bar Foundation and a Fellow of the American College of Real Estate Lawyers and has practiced real estate law for more than 26 years.
Adam Verstandig is a partner at Sidley Austin whose practice focuses on the representation of financial institutions in real estate finance and development, with a particular emphasis on construction lending and investment for the financing of affordable multifamily housing, including financings with a variety of tax credits and tax-exempt bonds.
Endnotes
[1] See Press Release: NYC Takes Major Step Towards Creating More Affordable Housing Under New Tax Incentives Programs, Oct. 8, 2024, https://www.nyc.gov/site/hpd/news/035-24/nyc-takes-major-step-towards-creating-more-affordable-housing-under-new-tax-incentives-programs.
[2] See Affordable Housing – Do You Qualify?, New York City Housing Prservation and Development, https://www.nyc.gov/site/hpd/services-and-information/do-you-qualify.page (last visited 5/1/2023).
[3] 2024 Low Income Housing Tax Credit Qualified Allocation Plan of the City of New York, https://hcr.ny.gov/qualified-allocation-plan-qap.
4 AMI Cheat Sheet 2024, ANHD, https://anhd.org/report/2024-ami-cheat-sheet.
[5] See Richard Burns, How Whole Communities Benefit From Affordable Housing, Forbes, Jan. 6, 2020, https://www.forbes.com/councils/forbesrealestatecouncil/2020/01/06/how-whole-communities-benefit-from-affordable-housing/.
[6] See HUD-Insured Multifamily Loans, Simplified, Janover Hud Loans, https://www.hud.loans/.
[7] Id.
[8] “Green building” and “sustainable building” are often used interchangeably and will be used similarly for the purposes of this article.
[9] See Green Building –Basic Information, Environmental Protection Agency, https://archive.epa.gov/greenbuilding/web/html/about.html.
[10] See Karen Sam, Waterless Urinals vs Normal Urinals: Understanding Their Pros and Cons, Organica Biotech, May 6, 2024, https://organicabiotech.com/waterless-urinals-vs-normal-urinals-understanding-their-pros-and-cons/.
[11] See https://www.nyc.ogv/site/buildings/coes/1197-greenhouse-gas-emissions-reductions.page.
[12] The higher the MERV rating, the more contaminants are removed from the air. See National Air Filtration Association, Understanding Merv – October 2018, at https://www.epa.gov/indoor-air-quality-iaq/what-merv-rating.
[13] Such as NYC Local Law 97 of 2019.
[14] See https://www.nyc.gov/site/buildings/codes/greenhouse-gas-emissions-reductions-violations.page.
[15] See Gearoid Collins, Go Green and Make the Most of Your Commercial Real Estate Investment, Boldyn Networks, https://www.boldyn.com/us/blog/go-green-and-make-the-most-of-your-commercial-real-estate-investment (focusing on better quality tenants willing to pay premiums for green space).
[16] See Section 45L Tax Credits for Zero Energy Ready Homes, U.S. Department of Energy, https://www.energy.gov/eere/buildings/section-45l-tax-credits-zero-energy-ready-homes.
[17] See John Egantios-Beene, Ross Moskowitz, and Karen Scanna, U.S.: Post City of Yes – What to Expect in 2025, Hogan Lovells, Jan. 23, 2025, https://www.hoganlovells.com/en/publications/us-post-city-of-yes-what-to-expect-in-2025.
[18] See Local Laws of the City of New York for the Year 2019, New York City, https://www.nyc.gov/assets/buildings/local_laws/ll97of2019.pdf.
[19] See Probate & Property, American Bar Association, March/April 2023, https://www.americanbar.org/groups/real_property_trust_estate/resources/probate-property.
[20] OneNYC 2050: Building a Strong and Fair City, NYC Mayor’s Office (Apr. 2019), https://climate.cityofnewyork.us/wp-content/uploads/2022/10/OneNYC-2050-Summary.pdf.
[21] NYC Council data shows that residential use accounts for 36% of New York City’s GGE emissions from buildings over 50,000 square feet – the largest share of GGE emissions of all uses identified in the dataset. See NYC Council, Climate Mobilization Act: The New York City Council passed #GreenNewDeal4NY to mitigate the significant effects of greenhouse gas emissions from buildings, supra note 1.
[22] See Local Laws of the City of New York for the Year 2019, NYC Council, https://www1.nyc.gov/assets/buildings/local_laws/ll97of2019.pdf (codified at NYC Admin. Code §§ 28-320.1–28-322.4) (“This law has an effective date of November 15, 2019”).
[23] NYC Admin. § 28-320.1 (Exceptions to the definition of a covered building include (1) electric or steam power generation facilities; (2) a series of dwellings for which responsibility over HVAC and hot water are held separately by each unit owner, and with no such system in the series serving more than 25,000 square feet; (3) a city building, except senior colleges in the City University of New York system; (4) housing developments or buildings on NYC Housing Authority-owned land; (5) a rent regulated accommodation; (6) a religious house of worship; (7) property owned by a housing development fund company organized under New York law; and (8) a building that participates in a project-based federal housing program).
[24] NYC Admin. § 28-320.3.7 (“By May 1, 2025, and by May 1 of every year thereafter, the owner of a covered building shall file with the department a report, certified by a registered design professional, prepared in a form and manner and containing such information as specified in rules of the department [of buildings], that for the previous calendar year such building is either: 1. In compliance with the applicable building emissions limit . . . [under] section 28-320.3; or 2.Not in compliance with such…limit, along with the amount [in excess]. For a report filed on or after May 1, 2026, where a report required to be submitted by May 1 in the prior year indicated that the . . . building [failed to meet the applicable limit], but such building is in compliance for the calendar year covered by the report required to be submitted by May 1 in the current year, such report shall describe the methods used to achieve compliance”).
[25] NYC Admin. § 28-320.6.
[26] See Justin Gerdes, After Pandemic, New York’s Buildings Face Daunting Decarbonization Mandate, Green Tech Media, Apr. 23, 2020, https://www.greentechmedia.com/articles/read/new-york-citys-ambitious-building-emissions-law-turns-one.
[27] Id.
[28] See, e.g., Energy Star Impacts: Energy Star for the Residential Sector, U.S. Environmental Protection Agency and Dep’t of Energy, https://www.energystar.gov/about/impacts (For example, homes certified under EPA and DOE’s Energy Star efficiency rating system “are at least 10% more energy efficient than those built to code and achieve a 20% improvement on average while providing homeowners and residents with better quality, performance, and comfort”); Steven Nadel, For Existing Homes, Energy Efficiency Often Has a Better Return on Investment Than Solar, American Council for an Energy-Efficiency Economy, May 1, 2019, https://www.aceee.org/blog/2019/05/existing-homes-energy-efficiency. The study’s average retrofit cost have to be replaced eventually.
[29] Green Globes, a product of the Green Building Initiative.
[30] Energy Star, a United States Environmental Protection Agency and United States Department of Energy program that encourages energy efficiency and designates the Energy Star Rating that provides a product or buildings energy efficiency.
[31] See Green Communities, Enterprise, https://www.enterprisecommunity.org/impact-areas/resilience/green-communities.
[32] Id.
[33] See Inclusionary Housing Program, New York City Housing Preservation & Development, https://www.nyc.gov/site/hpd/services-and-information/inclusionary-housing.page.
[34] See Density Bonuses, Local Housing Solutions, May 7, 2021, https://localhousingsolutions.org/housing-policy-library/density-bonuses/.
[35] Id.
[36] See Rules for Special Areas: Inclusionary Housing Program, New York City Department of Planning, https://www.nyc.gov/site/planning/zoning/districts-tools/inclusionary-housing.page.
[37] Id.
[38] See 2011 Low Income Housing Tax Credit Qualified Allocation Plan, City of New York Department of Housing Preservation and Development, April 2011, https://www.novoco.com/public-media/documents/newyork_city_final_qap_11.pdf.
[39] See Green Housing Preservation Program, New York City Housing Preservation & Development, https://www.nyc.gov/site/hpd/services-and-information/green-housing-preservation-program-ghpp.page (last visited 3-29-2024).
[40] See Gov. Andrew Cuomo, Executive Order No. 88: Directing State Agencies and Authorities To Improve the Energy Effiicency of State Buildings, Office of the Governor of New York State, Dec. 28, 2012. https://www.governor.ny.gov/sites/default/files/atoms/files/EO88_0.pdf (last visited 3/29/2024).
[41] See Anna Rautenberg, $307 Million Sustainability Bond To Rehabilitate and Retrofit Affordable Housing in New York, Impact Alpha, July 11, 2023, https://impactalpha.com/impact-muni-bond-combating-poverty-and-energy-inefficiency-in-new-york-state-housing/.
[42] See Press Release: Governor Hochul Signs Legislation To Build and Preserve More Affordable, Sustainable Housing in New York City, Oct. 23, 2023, https://www.governor.ny.gov/news/governor-hochul-signs-legislation-build-and-preserve-more-affordable-sustainable-housing-new.
