Impact fee on developers proposed to aid low-income residents in path of Philly housing boom

Philadelphia’s real estate market is booming, and, to help make sure low-income residents aren’t pushed out as a result, affordable housing advocates want developers to pay a “housing impact fee.”

Here’s how the impact fee would work: Developers would pay between $1.10 and $4.80 per square foot of new market-rate houses and rental units. A recent report from the Philadelphia Coalition for Affordable Communities shows that could generate between $3.4 million and $12.2 million for the city’s Housing Trust Fund, which helps pay for new affordable housing and projects to fix up older homes.

The report, with data analysis prepared by the firm Econsult Solutions, finds that the fee could discourage some developers from building. On the higher end, a fee of $4.80 per square foot could “reduce market rate activity” by as much as 14 percent. 

The coalition’s Nora Lichtash said the desire is not to discourage development, but to find a middle ground that helps counteract the effect of rising rents and home prices on longtime, low-income residents. According to the report, an impact fee of $2.20 to $2.40 would reduce market rate activity by about 3 percent.

“In the neighborhood where I work in North Philadelphia, east of Broad Street, the cost to buy a house went up 200 percent since 2000. And in that same neighborhood, there are 22 percent fewer African-American households,” said Lichtash. “We believe there’s a correlation between costs going up and folks getting pushed out of the neighborhood, both renters and homeowners who can’t afford their home repair costs and sometimes their taxes.”

The housing impact fee is one of several ideas advocates are proposing to City Council members with the goal of doubling the Housing Trust Fund. 

Right now, the fund’s sole source of revenue comes from a portion of the mortgage and recording fees paid by new homebuyers or when transferring a home to an heir. Last year, the fund took in $11.7 million, which advocates and politicians agree is not enough to meet the need for affordable housing in Philadelphia. The goal of groups such as the coalition and the Philadelphia Association of Community Development Corporations is to increase annual revenue to $25 million. 

Other proposals aside from the impact fee include dedicating a portion of new revenue from properties that will be coming off the city’s 10-year tax abatement this year. Another idea is to tap some of the growth in revenues from the city’s real estate transfer tax, which have increased significantly amid Philadephia’s housing boom.

These proposals are part of a memo that was sent to City Council members and Mayor Jim Kenney’s administration, which have committed to considering these options for expanding the Housing Trust Fund.

Beth McConnell, policy director for the Philadelphia Association of Community Development Corporations, said $25 million would still be “a drop in the bucket,” but would be an improvement for a fund that spends about as much as it takes in.