It took Philadelphia's City Council over a year of hearings and behind-the-scenes wrangling to create a dedicated funding stream for affordable housing. Developers had to be arm-twisted into shouldering a new tax on construction. Housing advocates had to be assured that the city's poorest would truly benefit. When the compromise finally passed, just days before the end of Council's spring session, it made national news.
Since then, there has been radio silence from Mayor Kenney, who has until Sept. 13 to sign or reject the bill.
Jim Engler, the mayor's new chief of staff, insists the administration is merely using the summer recess to study the legislation, but Kenney has made no secret of his distaste for the proposal, which uses a tax on market-rate construction to pay for subsidized housing. Housing advocates are convinced he will use his veto power for the first time since taking office in 2016 to kill the measure, and they've started a social media campaign to ratchet up the pressure. Still, a high-ranking elected official told me, "I'd be really shocked if he doesn't veto it."
Then what happens? While Philadelphia isn't anywhere close to experiencing the gentrification-fueled housing shortages that have plagued Seattle and San Francisco, the success of the bill demonstrated broad support here for getting ahead of the problem. The construction tax might not have been a perfect solution, but it was the best solution that the largest number of people would accept. If Kenney vetoes Council's plan, the burden is on him to come up with something better.
The administration knows that, Engler said. "We understand the need for additional resources for affordable housing," he explained, but the mayor worries that Council's approach may do more harm than good. The administration contends that the logistics and cost of collecting the money will be daunting, and the tax could scare away some developers.
Most experts I interviewed think those concerns are overstated. The stronger argument for rejecting the construction tax now is that it puts the cart before the horse. The administration is in the process developing a comprehensive housing strategy for the city. That plan, which will roll out in the fall, is expected to take a big-picture approach to the interconnected problems of poverty and housing. It will look at ways to boost, and pay for, the production of all kinds of housing — for the homeless, the working poor, the elderly, debt-burdened college graduates, and plain-old middle-class buyers. The fear is that the 1 percent construction tax could box in the administration by making it politically difficult to impose other kinds of fees.
My reservations with the construction tax have more to do with how it will complicate efforts to modify the 10-year property-tax abatement. Although the abatement has played a vital role in Philadelphia's revival and has boosted revenue to the city's general fund over the long term, it has effectively become a subsidy for the wealthiest, most successful parts of the city. It's hard to continue justifying this two-decade-old policy in its current, one-size-fits-all form when the need for affordable housing is growing.
Recently, more policy leaders have begun to speak out about the fairness issue. Those cries for reform grew louder after Philadelphia homeowners discovered this spring that their property taxes were going up by an average of 10.5 percent, thanks to a citywide reassessment. But making revisions to the abatement could be a heavier lift if developers can argue that they already took a hit when they agreed to the construction tax. Some developers jokingly call the 1 percent construction tax a tax on the tax abatement.
Andrew Frishkoff, who runs the nonprofit Philadelphia office of the Local Initiatives Support Corp. and serves on the task force that has been working on the city's housing plan, believes there is growing momentum to update the abatement. "The way it's currently structured no longer feels equitable," he says.
Controller Rebecca Rhynhart, who recently completed a study of the abatement, agrees. Her report lays out several ways to reform the incentive without jeopardizing the long-term revenue gains it brings. Whatever happens to the construction tax, Council is likely to hold hearings on the abatement when it returns to work in September. In a way, it's impossible to separate the two issues.
Several economists argue that Philadelphia could even use the abatement to realize its affordable-housing goals. By setting aside the revenue it gains when abated houses come onto the tax rolls, the city could create a steady stream of money to fix up old houses and build subsidized housing. It would be like getting a raise and immediately putting the bonus into a 401(k) plan. But the city could easily be tempted to divert the money to other purposes.
Philadelphia is hardly the only city trying to strike a balance between stoking new development and making sure its struggling neighborhoods are treated fairly.
After a decade of growth and revival, many cities are fighting to contain the side effects of gentrification and prevent the poor from being forced out by rising rents. But Philadelphia's situation is so unique that many approaches adopted by our peer cities won't work here. Our housing is remarkably cheap compared to a city like New York, and we have plenty of vacant land to build new homes. The majority of residents — 52.2 percent — still own their homes, making them more resistant to displacement.
The real issue in Philadelphia is our stubborn poverty rate, now 26 percent.
Even a bargain apartment isn't a bargain for a family subsisting on a minimum-wage income. While plenty of seniors own their homes, many are too poor to pay for crucial repairs needed to keep them livable. As Jeffrey Allegretti, an affordable housing developer in Point Breeze, often says: "Philadelphia doesn't really have an affordable housing problem. It has a housing quality problem."
The money from the construction tax is meant to address the quality issue by funding repairs and providing small loans.
Many experts, like Alan Mallach, author of The Divided City, believe Philadelphia needs to repair whole neighborhoods, not just individual houses. In the book, he argues that the city should stop talking about gentrification and focus instead on its declining middle neighborhoods, places like Frankford and Tacony, where there is good housing stock, but too many people living just above the poverty line.
Done right, the city's forthcoming housing plan could combine a housing strategy with a preservation strategy. Older homes are always more affordable than new construction. The right policies would not only keep ruined and abandoned houses from bringing down Philadelphia's middle neighborhoods, they could also go a long way toward preserving the city's special architectural character.
In theory, Mayor Kenney doesn't have to veto the construction tax to kill it. He could ask Council to recall the bill and offer to collaborate with its members on a new version. Since taking office, Kenney has gone out of his way to try to work with Council.
For all the weaknesses of the construction tax, Councilwoman Maria Quiñones-Sánchez, who has taken the lead on the affordable housing issue, remains skeptical about finding a better option. "This was a compromise of a compromise of a compromise," she said. "I'll be interested to see what alternative the mayor comes up with."