Last month, in a bid to increase the city’s stock of affordable housing, City Council approved a bill that requires developers building large projects to set aside 20% of units at reduced prices.
The legislation — which will go into effect six months after it’s signed by the mayor — applies to neighborhoods in West, North, and Northeast Philadelphia, where many residents are in danger of getting priced out.
Everyone agrees the city lacks enough affordable housing — which can have deadly consequences, as evidenced by Wednesday’s deadly fire in a rowhouse occupied by dozens of people.
But not everyone agrees that a City Council requirement to include affordable housing in new developments is the answer.
We asked two local experts: Should developers be required to include affordable housing in new buildings?
By Ryan Spak
In the last five years, my small development and management company in West Philly has brought 91 inclusionary rental units to market without any public subsidy. In other words, no tax dollars went to create rental housing at prices hundreds of dollars less per month than market-rents for the residents calling these apartments home.
The Spak Group began to focus on equitable housing several years ago, after listening to our neighbors regarding inequity, displacement, and community engagement. In every aspect of our organization, our focus is on affordability, culture, and community.
So I was honored when Councilmembers Maria Quiñones-Sánchez and Jamie Gauthier asked me to review their legislation to increase affordable housing and run models. We all have the same goal: to build more equitable and affordable options into every real estate development happening in our neighborhoods.
» READ MORE: Affordable housing must be included in new developments in some Philly neighborhoods, Council says
I was asked: In what scenario does the mandatory inclusionary housing legislation work in the current market conditions?
So, we shared with Council real-time development scenarios, looking at every level of area median income (AMI) and tweaking the percentages of mandatory inclusionary housing.
Every analysis found that this legislation is impossible in non-Center City core neighborhoods without direct public subsidy, no matter the percentage of units or affordability level.
There are two main problems: the current pressures facing the housing market and the requirements of this legislation.
Today, rents have already risen to unseen levels. This legislation forces those costs to rise faster and higher because developers will have to charge more for the market-rate units to pay for the affordable units. For one example, to meet the required 20% of the units at 40% AMI, Spak Group would need to rent a two-bedroom apartment in Cedar Park for $2,150 per month — $500 per month more than I’ve ever achieved in my 10 years developing and managing rentals in West Philly. The market will reject these prices; the project will never be constructed and, as a result, neither will the affordable units.
By mandating that any new housing development include and cover the costs of 20% affordable units, the new legislation will force developers to either build only luxury-priced developments that charge high rents to cover the costs of the affordable units or move out of our marketplace. The result to smaller/midsize developers, like me, will be incredibly harmful to our future viability. As a result, I fear for my 11 employees and the negative trickle-down effect through the real estate industry to our title companies, Realtors, subcontractors, and other colleagues.
What’s more, any future affordable options built without direct public subsidy will not happen in the neighborhoods that need them the most. Thus defeating the entire purpose of this legislation.
Our model of developing inclusionary housing works, but not because of any legislation. We use a creative mix of well-priced land, density, tax abatement, private investment, favorable financing, and properly managed construction costs.
I pleaded at the Council hearing not to pass the legislation, and instead study it properly. Council needs to better understand the numbers and work with developers to find a model in today’s market climate that will create more affordable options from every private development. Spak Group has shown this can be done — but not with this legislation.
Ryan Spak is the principal and founder of Spak Group.
By Jamie Gauthier
As a city planner, an elected representative of a rapidly gentrifying, majority-Black district, and the chair of City Council’s Committee on Housing, Neighborhood Development, and the Homeless, housing justice is at the core of my agenda. To me, housing justice means ensuring that working-class people of color can continue to live and thrive in the communities that they’ve built here in Philadelphia over generations.
But we face a monumental challenge. In addition to being the poorest big city in the United States, Philadelphia also has the highest proportion of cost-burdened households with low incomes, meaning that at least 30% of their income goes toward housing costs. We cannot continue to accept this as the status quo — we must act.
The Mixed Income Neighborhoods Overlay (MIN) bill, which Councilmember Maria Quiñones-Sánchez and I partnered on last year, aims to preserve affordability by requiring that affordable housing be part of large new development projects in certain parts of our districts — so that Philadelphians of all income levels can continue to access safe, amenity-rich neighborhoods.
» READ MORE: Philly planning officials expect more big real estate projects in 2022 despite property-tax break’s partial lapse
Prior to MIN’s unanimous approval by City Council last month, no large-scale affordable housing requirement existed in our city’s zoning code. The impacts of that fact are reflected in gentrifying neighborhoods across our city, and in my district in particular.
To give you a sense: Housing values in the University City area have increased dramatically since the 1970s, while our analyses show that Black populations in neighborhoods east of 52nd Street have plummeted since 2000. Nearly half of my district’s households are cost-burdened, and 70% of rental units cost more than $750 per month — which is affordable to only 35% of our residents. These trends will surely worsen without intervention.
A complaint we’ve heard from developers since day one is that MIN will diminish the return on investment for their projects — and yes, it’s true that this legislation will require them to see lower profits than they’re accustomed to. It remains unclear to me why we should find it unacceptable for developers and investors to see less of a return, but fail to question why we continue to build housing that doesn’t meet the needs of current residents. Just because the existing system works for developers and investors doesn’t mean we should let socially irresponsible development continue, unfettered.
“Just because the existing system works for developers and investors doesn’t mean we should let socially irresponsible development continue, unfettered.”
Opponents of this legislation say it will stymie development in my district. I have a hard time believing that. To say that commercial development is booming in University City would be an understatement — and we know that today’s workers want their jobs to be close to their homes, which will lead them to continue moving to this part of the city. MIN will ensure that this growth doesn’t displace working-class residents and that we have equity in our neighborhoods for years to come.
While MIN will not single-handedly end our city’s housing crisis, it is a powerful tool we can use to generate new affordable units. According to our analysis, in the last three years of permit data for buildings with 10 or more units, 3,100 new units have been approved. So, if our bill had been in place just three years ago, we would have up to 620 additional affordable homes in our district, built by the private sector.
The continued growth of our city is important, but it cannot come at the expense of vulnerable Philadelphians.
Jamie Gauthier represents the city’s 3rd District in West Philadelphia.