Philadelphia, like many American cities, faces a shortage of affordable housing. In 2012, for every 100 renter households making no more than a third of the median income in the area, only 38 units were available and affordable. For every 100 households making no more than half the area median income, only 74 rental units were available and affordable. But city leaders believe they have a solution: about 9,000 publicly owned vacant properties, much of which are in areas where the cost of living is on the rise.
This week, city leaders announced a handful of successful deals with private developers to take those vacant lands and build affordable housing in quickly gentrifying neighborhoods. While the announcement is part of a larger plan by the Philadelphia City Council to create a mix of housing for moderate and low-income residents, the five initial sites target “working class” households that could buy a new townhouse priced around $200,000. Households are eligible if their incomes are between 80 percent and 120 percent of the area median income. For a family of four in Philadelphia, that would put the eligible income range between $64,900 and $97,320 a year.
The council is also working with the U.S. Department of Housing and Urban Development to tap federal tax credits that would allow for the construction of new rental units for people with less money. More than a quarter of the city’s residents live below the federal poverty line. Ultimately, the city's goal is to create 1,000 homeownership units for middle-income households and 1,000 rental units for low-income households.
What makes the initiative different from past affordable housing efforts by the city is its target population, said Richard Sauer, executive director of the Philadelphia Association of Community Development Corporation. The city is trying to provide new units to people who make too much to qualify for subsidized housing but too little to buy market-rate houses in gentrifying neighborhoods. That's a group of residents traditionally missed by both public housing assistance and the private market.
Philadelphia City Council President Darrell Clarke has pitched the new workforce housing as an attempt to reduce income inequality in the city. On a scale of zero to one, from absolute income equality to absolute inequality, Philadelphia has a Gini Index coefficient of 0.5072, according to a five-year average calculated by the U.S. Census Bureau. That’s higher than the national average of 0.4735, but lower than the Gini coefficient in New York City, which is 0.5402. Among large metro areas with at least a million residents, the Philadelphia metro area ranked 12th for high income inequality in 2012, a statistically significant increase from 2007, when the national economic recession began.
Clarke said the growing gap in income stems from several compounding problems: low and stagnant wages, an increasing cost of living and inadequate levels of educational attainment. With the newest housing initiative, “we think we have a real solution to one of them.”
Last year, the council enacted an ordinance that identified 10 "opportunity zones" with at least 100 publicly owned properties. For the five initial sites announced on Monday, developers have agreed to buy the vacant land for $1 on the condition that they sell housing units below market rates and maintain the price for 10 years. A restrictive covenant also requires that if the new homeowners decide to resell their houses, they sell at below market-rate prices. The city anticipates that houses sold under the opportunity zone program will go for anywhere from $180,000 to $230,000. (By contrast, market-rate units are now selling for more than $400,000.)
A February report from the Federal Reserve Bank of Philadelphia illustrates why Clarke and others have sought to provide more affordable housing to residents. Renters outnumber the supply of units priced below 30 percent of median family income, and that mismatch worsened between 2007 and 2012. The proportion of low-income renters who are “cost burdened” -- meaning they spent more than 30 percent of their household income on rent -- increased from roughly a quarter in 2007 to 46 percent in 2012.
Demand for low-cost rental units outstrips supply across the country. A report released this week from the Urban Institute, a think tank in Washington, D.C., shows that rents have risen over the past 15 years while the number of renters who need low-cost housing has increased. For every 100 renter households at or below 30 percent of the area median income, only 28 "adequate and affordable" units are available, the Institute said. That analysis takes into account the gap between income and low-cost rental units, but also considers the livability of units by discounting places without basic amenities like a kitchen or complete plumbing.
Some cities could take a page out of Philadelphia's playbook and use publicly owned vacant properties to build low-cost housing. But Philadelphia is probably unusual in having such a vast stock of unoccupied lots under government control, and having the good fortune of owning some in neighborhoods with quickly appreciating home values. Still, the key to making the initiative work is the income status of the homebuyers. Even with free land to entice developers, city officials made deals financially viable by allowing sales prices that will be out of reach for low-income residents.
That's not a wise use of city resources, said Elina Bravve, a researcher at the National Low Income Housing Coalition. In March, her group analyzed 2013 Census data on rental housing in the Philadelphia metro area and found that the housing shortage disproportionately burdens renters who make no more than 30 percent of the area median income. Those low-income households have fewer affordable options and wind up spending over half their income on rent. "Our policy goal is always to push for [rents] below 30 percent [of area median income]," Bravve said. "It’s the hardest for developers to serve, but there is huge need."
This story has been updated to clarify that the Philadelphia area's housing shortage disproportionately affects low-income households.