More than 230,000 Philadelphia families choose between paying for food, housing or healthcare. In too many neighborhoods, residents question how and when they will benefit from constructing new homes seemingly all around them. To address the growing need for low-cost housing, governments often propose legislation that mandates the inclusion of affordable units. While well-intentioned, inclusionary zoning can also halt development in neighborhoods that need it most.
The Building Industry Association of Philadelphia opposes IZ in Philadelphia without the right incentives to offset the impacts of lower multifamily rents and for-sale home prices in a city with one of the highest construction costs in the country. Narrow margins make building the required number of affordable housing units at low AMIs financially impossible in most cases.
That’s why the BIA supported a construction tax to help provide the funding needed to make private development of affordable homes possible. We also launched the “Can I live here?” campaign to inform residents of a plan to bring affordable housing to their neighborhoods and ask residents to tell City Council they support affordable housing on public land.
The BIA created a blueprint for building affordable housing throughout Philadelphia that leverages legislation unanimously passed by Council in November 2019. Bill No. 190606 allows the Land Bank to dispose of city land to qualified individuals, nonprofits or private developers if 51% of the proposed homes are affordable. This approach promotes the creation of mixed-income communities on city-owned land to make for-sale or rental housing within reach for all. It’s that simple.
While the power of Bill No. 190606 has not yet been activated, it is a public-private solution that streamlines affordable housing development on city land at high percentages, making IZ proposals unnecessary and counterproductive. Most real estate developments under proposed IZ and reduced incentives would fail to meet basic investment and funding tests, preventing affordable housing projects from being financed and failing the residents the policies are intended to help.
For conventional banks to finance projects, owners must demonstrate that revenues exceed operational expenses by 25%. Private investors will not take on the risk if the return on investment to owners is less than 8%. Projects required to provide 20% of the units for residents making 40% of the Area Median Income, for example, will not meet these criteria, impeding housing development, especially in emerging neighborhoods.
Under proposed IZ and reduced incentives, most developments would fail simple underwriting tests and never be built. In The Economics of Inclusionary Development, a study focused on multifamily rental development and IZ, the Urban Land Institute’s Terwilliger Center for Housing found that “in most cases, jurisdictions will need to provide development incentives to ensure the feasibility of development projects affected by an IZ policy. The principal incentives are direct subsidies, density bonuses, tax abatements and reduced parking requirements.
Individually and in combination, these incentives can substantially enhance the feasibility of development projects affected by an IZ policy. Each incentive has strengths and limitations that derive from the local real estate development environment.” Experts must scrutinize proposed IZ and changes to existing development incentives in Philadelphia to ensure they will produce the intended results.
In Philadelphia’s current economic climate and because of expiring tax abatement incentives, costs are increasing and banks are now requiring greater equity, putting more and more housing projects at risk. Without the right market conditions and incentives, IZ will slow down all development in the pipeline, including affordable housing.
The “Can I live here?” campaign is designed to raise awareness among residents that the key to solving Philadelphia’s affordable housing crisis is unlocking city land and engaging the help of the private sector. The BIA Blueprint offers a plan to deliver 6,000 affordable units by 2030 using public sector levers like low-cost land, density zoning bonuses and tax abatements that allow the private sector to build mixed-income housing with no additional city-funded subsidies. More than 6,000 parcels of public land are available, yet numerous applications that could produce hundreds of affordable homes are still waiting for city approval.
The city estimated a need for 30,000 low-cost units by 2028, a demand too great for the city, nonprofits or land trusts to address alone. Private sector developers must be engaged to help meet this goal. Together, we can leverage existing Land Bank policies and the capabilities of BIA members to accelerate the development of high-quality, affordable homes on public land.
Sign our petition at CanILiveHere.org and tell City Council you support the BIA’s plan to build affordable housing on public land.
Mo Rushdy is the treasurer of the BIA, managing partner of the Riverwards Group and a vocal advocate for public-private partnerships to address Philadelphia’s affordable housing crisis.