Philadelphia City Council will soon vote on a bill to create a Construction Impact Tax, which could generate as much as $22 million each year for the Philadelphia Housing Trust Fund to invest in affordable homes. It's past time for Philadelphia's building boom to provide benefits for low- and moderate-income Philadelphians, and the Construction Impact Tax is a common sense way to do that.
Here's how it would work: When an entity applies for a building permit — either for new construction, or to significantly rehab an existing building, like an old warehouse — they already report the cost of the project on the application. The Construction Impact Tax would be a new 1 percent fee on that reported cost. The city would deposit the revenue into the Philadelphia Housing Trust Fund. The Housing Trust Fund, which was created in 2005, would then make those funds available for affordable housing.
For example, nonprofits that provide housing counseling to first-time home buyers could use the funds to provide closing costs or down payment assistance so that moderate-income families can buy a home in their neighborhood of choice. Builders could apply for the funds to turn vacant lots or abandoned buildings into new affordable rental apartments. The Housing Trust Fund, managed by the city's Division of Housing and Community Development (DHCD), has more than 12 years of experience making these and other types of affordable housing investments. The Construction Impact Tax would significantly boost its resources to serve more Philadelphians.
The Construction Impact Tax and the affordable homes it would fund would be a first start in returning something to low- and moderate-income Philadelphians, who have subsidized the building of high-end, market-rate homes and apartments. Since 2000, developers and buyers of new construction have benefited from the 10-Year Tax Abatement, which exempts from property taxes for a decade any improvements that are part of new construction or a significant rehab. A company that recently built a multimillion-dollar apartment building in Center City pays $1.6 million a year less in property taxes, and the buyer of a $500,000 newly built home or condo avoids about $5,000 per year in taxes, thanks to the abatement.
The Construction Impact Tax would reflect a very small credit back to low- and moderate-income Philadelphians, equivalent to roughly one year's value of the abatement. By setting it up as a tax that gets deposited into the Housing Trust Fund, we can ensure those funds get targeted to the affordable housing needs of income-restricted Philadelphians, many of whom are getting priced out of their neighborhoods because of rising home prices and rents.
City Council should earmark at least half of the revenue generated from this tax to meet the housing needs of the lowest-income households, those earning 30 percent of the Area Median Income (AMI) or below ($24,900 annually for a family of four). Philadelphia has a massive unmet need for affordable homes for this population, who are plagued with housing instability and cost burdens. Stable, affordable housing is critical if we want children to succeed at school and workers to function well on the job.
City Council should also ensure that affordable homes created or subsidized with these funds stay affordable for the long-term; at least 50 years for rental development, and 15 years for sold homes. That would ensure that developers and buyers that receive public funds don't flip the homes or spike the rent after a few years.
Finally, City Council should create a credit against the tax for certain affordable housing developments. It makes no sense to tax affordable housing providers in order to create affordable housing, especially when those projects would require extra public subsidy from the city just to pay the tax.
Council President Darrell Clarke and Councilman Mark Squilla have been leading the efforts to create the Construction Impact Tax, and Councilwoman Maria Quiñones-Sánchez has been a strong advocate for mixed-income communities and more resources for the Housing Trust Fund. They should be applauded for their leadership; their efforts deserve support from other members of Council and Mayor Kenney.