As Philadelphia wrestles with the question of whether and how to enact an inclusionary housing (IH) ordinance, it might pause a moment to consider the lessons of the more than 200 U.S. jurisdictions that have already done so. Nationwide, IH programs in these places have spurred the development of more than 170,000 affordable units, and over $1.7 billion in revenues for affordable-housing development. Sure, every city is different, but not so different that the lessons learned in one community can't be put to good use in another. Among the many lessons U.S. cities with IH programs have learned:
Montgomery County (Maryland) was the first large U.S. city or county to adopt an IH ordinance, way back in 1974, and to date, Montgomery County's program has produced more than 14,000 affordable units. Montgomery County's ordinance is automatically suspended when the economy runs into trouble or when market-rate production tumbles. Compared with Philadelphia, Montgomery County is wealthier and more suburban, but there is no inherent reason Montgomery County's sensible approach couldn't work in the City of Brotherly Love.
IH programs struggle the most in meeting deep affordability needs—helping families who make less than 50 percent of area median income. The current proposal in front of the Philadelphia City Council suggests that for every 10 units developed or substantially rehabilitated, 10 percent of units should be affordable. Affordable in the city's "core metropolitan area" means 50 percent (or less) of area median income for rentals; elsewhere, it means 30 percent or less. While these are laudable goals, they may not always be realistically achieved through just IH, and without some modification, might actually deter development. To better meet the city's housing affordability goals, the proposed IH program should be modified to work seamlessly with other federal, state, and local subsidy programs. Fortunately, such programs exist and are already being put to good use in Philadelphia.
IH programs work best in hot markets, and don't work in cold markets—where the demand for new housing is lacking. Philadelphia is unique in that it is a large city that includes both hot and cold markets. Unfortunately, the current IH proposal applies affordability goals to both segments of the market. In fact, it requires even deeper affordability in the cold markets than in the hot ones. This approach will only increase the cost of development, and decrease investment, in softer markets in Philly. An alternative approach would tie the IH affordability requirement (e.g., 5 percent to 10 percent) to neighborhood rents. The requirement would be higher in neighborhoods where rents are much higher than the citywide median (or rising much more quickly) and lower in neighborhoods where rents lag the citywide median.
Developers claim that IH is unfair because it forces them to solve a problem they didn't cause, and typically threaten to leave the market should an IH program be adopted. Instead of increasing affordable-housing supplies, they argue, IH will reduce them, further exacerbating local shortages of affordable housing. These claims don't hold up in practice. People still build, and often at the same levels, in areas that have a good IH policy.
Unless a developer is building a project of a hundred units or more, it makes little sense to offer density bonuses in return for providing a handful of affordable-housing units. The additional stories won't dramatically improve the developer's bottom line and the additional units won't make much of an affordability difference. To the contrary, the increased stories and density will galvanize neighbors to oppose the project over its traffic, parking, and community-service impacts.
Some IH programs allow developers to contribute to an affordable-housing "in-lieu" fund rather than build affordable units. In-lieu fee payments can help stretch a city's affordable-housing budget, but they are rarely effective at boosting affordable-housing construction. The current proposal in Philadelphia has an in-lieu component that would let some of the money go to the City's Trust Fund. Even when such funds are well-managed, they are less efficient at actually generating affordable units. Even more concerning, developers building in gentrifying neighborhoods where affordable units are most needed will have an even larger incentive to pay the "in-lieu" fee.
Too often development proposals divide communities. IH is that rare program that if properly implemented can be a "win-win" for all. The new development that comes with IH can provide needed investment in long-neglected neighborhoods while the affordable housing set aside can help keep the neighborhood economically diverse and make sure that longtime residents aren't priced out. Developers, affordable-housing advocates, and community members can all point with pride to the fact that instead of just complaining about the affordable-housing problem, they are all working together to do something about it.
A well-designed Inclusionary Housing program would not only be good for all Philadelphians, it would show the nation that Philadelphia is a place where the phrase equitable development is an everyday reality. So please, Philadelphia, let's take the time to get the details right and put forth the nation's best inclusionary housing program.