Philadelphia’s controversial new affordable housing policy might actually be working

This article originally appeared on PlanPhilly.

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The compromise that helped end City Council’s two-year-long fight over how to finance affordable housing is beginning to bear fruit.

Nine months after Councilwoman Maria Quiñones-Sánchez won support for an expansion of the city’s voluntary inclusionary zoning bonus program, 12 development projects are on track to use the incentive. The 12 projects will collectively generate more than eight units of affordable housing and deliver $3 million to the city’s Housing Trust Fund, said Paul Chrystie, a spokesman for the Kenney administration.

The expanded inclusionary zoning bonus, which Quiñones-Sánchez led into law last September, allows developers to build denser and taller residential projects if they include affordable units on-site or contribute money to the Trust Fund — a kind of municipal bank that can provide subsidies for affordable projects.  

The voluntary bonus passed after real estate industry opposition killed a mandatory inclusionary bill and a proposed construction tax. 

Quiñones-Sánchez said that while she still would prefer a policy that mandated developers build affordable or pay into the housing fund, the voluntary bonus’s track record so far signifies a win.

“I’m very pleased with the progress so far, developers have really been coming forward to be part of our affordable housing goals,” said Quiñones-Sánchez. “This demonstrates that we have responsible developers in Philadelphia who really want to advance affordability in the city.”

The 2018 compromise brokered by City Council and the mayor came with a projection that the inclusionary zoning bonus would bring in $18 million over five years. That pencils out to $3.6 million — a revenue goal the city could meet if all the projects now in the pipeline move forward as planned.  

“The fact that six months in, they have already [received applications] for that amount is really exciting,” said Beth McConnell, policy director of the Philadelphia Association of Community Development Corporations. 

But Kenney administration officials don’t want to break out the champagne until the 12 projects in the pipeline are farther along. 

Developers who opt into the bonus must first submit their proposals to the Planning Commission, which then gives the Department of Licenses and Inspections the go-ahead to grant zoning permits. Developers don’t actually pay into the Housing Trust Fund until building permits are filed. None of the projects expected to pay into the Trust Fund has reached that stage yet, said Chrystie.

Given that, the city has “no way to predict” whether the bonus is on track to meet its $18 million goals, he said. 

First bonus-backed project underway in Queen Village

Ori Feibush, who has built an empire of renovated row houses in gentrifying areas of the city, is one of the developers expected to make use of the bonus. He plans to use it on four projects in exchange for $1 million in payments to the Trust Fund.

“I made business decisions on purchasing the properties” with the intention to use the bonus, said Feibush, the president of OCF Realty. “From a planning perspective, on our end, our plans to use the bonus went in all of our offering documents to the banks and all of our prospectuses to investors.”

But while Feibush’s projects remain in early stages, a 150-year-old Queen Village church turned Buddhist temple has won the distinction of being the first bonus-backed project to win its building permits.

Plans for the 1001 S. Fourth St. project show a 40-unit project. Four of the building’s 40 units will be priced at below-market rate in exchange for an allowance to build more floors within the existing structure.  

Opting out of integration?

Quiñones-Sánchez’s reformed bonus has already proved more popular than its predecessor, created in 2012 and used only three times over six years. That incentive applied only in the highest-density parts of the city. 

The expansion passed in 2018 allows the incentive to be used on residential projects in those densest districts, but also in multi-family row house areas.  

Though the new policy opens up many new areas for interested developers, places zoned for single-family housing still don’t qualify. Much of the city falls into that single-family zoning designation, including many of the most desirable and affordability-starved areas. 

Still, inclusionary zoning advocates view the policy as a tool to foster economic integration by incentivizing developers to build affordable units alongside market-rate ones.  

But Philly’s policy allows developers to opt out of that element by paying into the fund instead of building on-site. Only three of the 12 projects in the pipeline will build affordable units on site, with most, like Feibush, opting to instead pay into the Housing Trust Fund. 

Quiñones-Sánchez hopes that trend shifts over time.

We have “to encourage developers with high-impact projects in the community to [build affordable units] on site,” Quiñones-Sánchez said. “That’s what leads us to mixed-income communities.”

There are signs that the bonus could eventually expand beyond its current scope. Last week, City Council approved a spot-zoning bill that enables Parkway Corp. to use the incentive in the development of a Center City office tower.  Parkway’s 15-story tower at 20th and Arch streets will contribute $2.5 million to the Trust Fund in exchange for a floor-area-ratio bonus that will allow it to build additional square footage. 

That figure isn’t factored into the $3 million cash infusion the city expects from other projects using the bonus. 

At a Planning Commission meeting in June, Anne Fadullon, the city’s director of planning and development, said she liked the idea of expanding the bonus’s applicability to nonresidential projects. 

“Personally, I like the idea of commercial buildings paying into the Housing Trust Fund,” said Fadullon. “It’s something we should look at in a broader nature [beyond the Arch Street project].”