NLNA President: City Council, don’t fumble inclusionary zoning bill away on the two yard line

A mixed-income housing bill making its way through City Council aims at an important goal, but could miss the mark badly and hurt our city if Council rams it through next week.

The bill, authored by Councilmember Maria Quiñones-Sánchez, amends the city’s zoning code to make an optional affordable-housing incentive mandatory. Developments of ten or more units on property zoned for medium and large apartment buildings will have to create ten percent affordable units, or pay $11,000 to $30,000-per-unit into the city’s Housing Trust Fund. So, a 200-unit project would have to make 20 units affordable, or pay $2.2 to $6 million into the Trust Fund.

In exchange, such projects will get density bonuses: They can build 30 to 80 percent bigger and taller, presumably allowing developers to recoup some of the cost of the affordable housing requirement.

Almost every relevant stakeholder group supports creating more affordable housing. But civic groups, developers, affordable housing advocates, the Planning Commission, and even some members of Council all have raised serious concerns about the bill as written.

Fortunately, Council’s Rules Committee (the make-or-break body for the bill) held the bill at its hearing on Monday, to allow time to explore these concerns.

Unfortunately, the committee intends to take up the bill again this coming Tuesday – a delay so short as to be meaningless, and a potentially disastrous move. If Council does not take a breath and table the bill until after the holidays, it is liable to pass a bill that will fail to achieve the goal of creating more affordable housing, while stalling development and depriving our city of much-needed population growth and tax revenue.

Here are three major problems with the bill, and how Council can address each one.

Problem 1. Developers Will Evade the Requirement

CMX-3 zoning is meant for medium-sized apartment buildings and is the most important apartment zoning category in most of the city.

CMX-3 is subject to the affordable housing requirement under the bill, but developers can get around that requirement in two easy ways:

1. For an apartment building of five floors or less – a very common type of project outside the Center City core – a developer can ask their District Councilmember to downzone the property or block to CMX-2.5. CMX-2.5 allows for apartments too, and has a 55-foot height limit. And CMX-2.5 is exempt from the bill’s affordable housing requirement.
2. A loophole in the Zoning Code lets developers build single-family townhomes under the guise of rental units or condos. So, someone with a 10,000 square foot CMX-3 lot, who might have to build 25 apartments to make a profit, can instead build 9 three-bedroom townhouses, evading the bill’s affordable housing requirement, since it applies to projects of 10 or more units. (Owners of larger CMX-3 lots can subdivide them into smaller lots, then sell them to different developers, who each can build nine houses.)

Solution: These loopholes are fatal, because they destroy the city’s ability to get any affordable units or Housing Trust Fund payments on most CMX-3 property. But they can be closed:

1. Make CMX-2.5 zoning subject to the affordable housing requirement (as it was in an earlier version of the bill).
2. Amend the Zoning Code to prohibit first-floor residential entrances (except shared lobbies) in CMX-3. That will make it impossible to evade the affordable housing requirement by building low-density but high-profit single-family residences in CMX-3.

Problem 2. The Bill Could Kill Projects That Can’t Use the Density Bonus

Building higher isn’t always more profitable: Bigger foundations, more steel, and elevators can make taller buildings a no-go. And building wider can be impossible given necessary open-space requirements in the Zoning Code.

Many projects will therefore incur the expense of the affordable housing requirement, but will not have any way of generating compensatory revenue, because they can’t take advantage of the bill’s density bonus.

If this new expense merely reduces developers’ profits somewhat, that could be a fair price to pay for more affordable housing in the city. But if it increases their costs so much that it makes their projects infeasible, that would be a disaster: It would stall development, create blight, shrink the tax base, and result in exactly zero new affordable units and zero new dollars paid into the Housing Trust Fund.

Solution: Council needs to commission an analysis of the likely economic impact of this bill on projects that can’t use density bonuses, and consider additional kinds of bonus incentives.

Problem 3. The Bill Isn’t Really a Mixed-Income Housing Bill; It’s an Impact Fee Bill, and Not a Very Good One

Mixed-income housing means affordable units are built on-site, so lower and higher income people live together. This bill won’t achieve that, for two reasons:

1. In most areas where market-rate development is happening, there’s a huge gap between how low prices and rents need to be for poorer Philadelphians to afford them, and how high prices and rents need to be for developers to get construction loans and make the project economically feasible.
2. The bill requires affordable units to remain affordable for 50 years, as opposed to the current system in which units need remain affordable for only 15 years.

These factors make on-site affordable housing incredibly expensive, meaning developers will instead opt to pay into the Housing Trust Fund. So, this bill effectively creates an impact fee, not mixed-income housing.

Solution: Council should stop pretending this is a mixed-income housing bill, and treat it as the impact fee bill that it really is. But impact fees work best when their cost is spread widely, while this bill would apply to less than 2% of properties in the city. More modest fees, applied to a broader cross-section of the city’s real estate, with fewer density bonuses, could go a long way to improving the bill and addressing the concerns of multiple stakeholders.

So, Council should get advice from the Planning Commission on how to create a proper impact-fee system. In fact, that’s exactly what a member of the Rules Committee requested of the Planning Commission at Monday’s hearing.

But like the solutions to the other two problems, this solution requires Council to behave responsibly, by tabling the bill on Tuesday, to give experts and stakeholders a realistic amount of time to provide the necessary data, information, and input, and to craft the necessary legislative language.

If Council truly wants to implement this laudable policy the right way, it has to slow down.