In Philly, There's No Such Thing as Free Affordable Housing

In late January, Philadelphia mayor Jim Kenney signed into law a city council bill mandating that newly constructed apartment buildings in the Third and Seventh Council Districts – University City and parts of North Philadelphia, respectively – must include income-restricted housing. According to the new rules, which take effect in six months, any multifamily building with 10 or more units must cap rents in 20% of units at a rate affordable to households earning 40% of the area median income or less. 

It’s a well-meaning policy, but in practice, it will likely worsen housing affordability in Philadelphia.

This isn’t the first time that the city has attempted an “inclusionary zoning” policy. In recent years, Philadelphia offered developers additional height or floor area in certain pockets of the city in exchange for including income-restricted housing. But these earlier programs were voluntary. Developers, moreover, could pay into the Philadelphia Housing Trust Fund in lieu of setting aside income-restricted units.

While few developers opted to set aside actual units – building and maintaining income-restricted units can be costly and complex – many were more than happy to make such contributions. And so, today, the Housing Trust Fund is now flush with cash to a level that city leadership is quietly diverting it to other uses.

The recently adopted ordinance changes this policy, making participation mandatory and blocking developers from simply paying money to meet their obligations. There’s no more opting out if the mandates don’t pencil. 

And as industry leaders have pointed out, they often won’t. Between high construction and land costs – in addition to the new mandate that developers give up a fifth of all the units they produce –  it’s likely that few developments, if any, will prove viable. City leaders were oddly blasé about the risk of discouraging development, passing the mandate without any study.

This risk isn’t purely theoretical, either. Since adopting a similarly aggressive ordinance in 2016, Portland has seen new multifamily permit applications plummet. When new housing stops getting built, housing prices go up. Indeed, to the extent that mandatory inclusionary-zoning programs act as a major new tax on housing development, they have been found to drive up housing costs. How’s that for inclusion?

It will work out the same way in Philadelphia, where the city’s poorly designed law will likely produce few income-restricted units. Even worse, it will also mean fewer contributions to the Housing Trust Fund and fewer market-rate units. The latter might be viewed as a program benefit by those who buy into the pseudo-scientific notion that new housing development drives gentrification, and not the other way around. The reality couldn’t be further from the truth. 

Study after study has found that even new market-rate housing production lowers local rents. And it makes sense: In a gentrifying neighborhood, prospective newcomers can either move into new buildings or bid up the price on existing housing – displacing current residents. With the newly adopted ordinance sure to thwart housing production in West and North Philadelphia, expect more displacement.

This isn’t to say that housing costs or gentrification aren’t real concerns. But with thousands of Philadelphians stuck on waiting lists for affordable housing, or forced into dangerously overcrowded living situations – as with the recent devastating Fairmont fire – the city needs solutions that actually work. 

For starters, city leadership could relieve pressure on gentrifying neighborhoods by allowing more housing construction in high-opportunity neighborhoods with ample access to jobs and transit. In much of Philadelphia – but especially in wealthier neighborhoods – zoning forbids the construction of multifamily housing, thus driving up housing costs. That must change.

At the same time, the city should better leverage existing assets to help moderate-income households find and keep decent shelter. It’s hard to justify the thousands of city-owned lots sitting vacant – especially when developers and nonprofits are eager to build housing on them. And for residents at risk of displacement, housing trust-fund dollars could be used to buy and preserve “naturally occurring affordable housing,” allowing residents to stay in place.

After decades of disinvestment and population decline, Philadelphia is back on the upswing. According to the 2020 Census, the city picked up nearly 100,000 residents over the past decade –the first time this has happened since the 1940s. This is unambiguously good news for the city. 

But with growth come new challenges. To avoid the fate of other high-cost cities along the northeast corridor, Philadelphia must keep its current housing boom alive, while being smart about preventing displacement and adding new affordable housing. For all the city’s good intentions, its recent embrace of untested mandates does neither of these things.

M. Nolan Gray is a professional city planner and a housing researcher at UCLA. He is the author of Arbitrary Lines: How Zoning Broke the American City and How We’re Going to Fix It.