Philadelphia’s Mixed-Income Housing program is like a money-printer for the city’s Housing Trust Fund, raising far more than City Council originally anticipated when they passed it in 2018.

As we wrote last month, the Housing Trust Fund just received its second-largest-ever payment under the Mixed-Income program, to the tune of almost $1 million for a single project. For context, the entire Housing Trust Fund has only been receiving about $20 million from the city in recent years, so receiving 1/20 of that from a single project is a big deal.

While the City initially projected the program would raise only $3.6 million a year back in 2018, as of March 2021, the program is already on track to raise over $13.5 million over two years.

The law is a pragmatic solution to the city’s housing funding needs that trades city permission to build taller and denser housing in exchange for including some on-site below-market housing units, or making a payment into the Housing Trust Fund in-lieu of providing the below-market housing. 

The way that Council structured the bill strongly favors the in-lieu fee option for the simple reason that it’s cleaner and easier to pay the fee, and Council made it harder and more expensive to comply with the on-site option. But now, there is some interest in trying to reengineer the program with the hope of producing more on-site affordable units, rather than money. 

It’s a worthy goal, but at the moment, the proposal from the Council members pushing for this, Maria Quinones-Sanchez and Jamie Gauthier, is still very far off from getting the density bonus math to where it would need to be to be successful. And if the proposed changes were to pass as-written, then they’re on track to junk the whole thing (more on this in a bit.)

One issue that's been depressing the use of the on-site option is that the required terms for the deed-restricted units were written to be infeasible for most builders, to the point where actual affordable housing non-profits managed to lobby their way out of having to comply with them in their own projects. Under the circumstances, it’s no surprise that nearly everybody who’s used the program has opted to pay the fee instead. 

What’s good about the in-lieu fee option is that it provides substantial funding for the Housing Trust Fund, and the Housing Trust Fund is good because it can leverage that funding many times over to support very progressive and targeted housing spending that overwhelmingly benefits the very lowest-income Philadelphians.

According to the most recent report from 2018-2019, the HTF leveraged its $28 million in funding, plus another $20 million in bond proceeds, to fund about:

- 10,000 home improvements

- 4,500 stabilization services

- 300 affordable rental units

- 80 new home purchases

Non-profit Community Development Corporations and affordable housing builders rely on the Housing Trust Fund to support their work and fill financing gaps, and much of the advocacy activity from the organized affordable housing sector over the last several years has been focused on winning more money for the HTF. And in particular, they’ve been asking for dedicated revenue streams like the one that the Mixed-Income Housing program provides. 

Best of all, the Mixed-Income Housing program works by creating development rights out of thin air—totally for free—and converting them into housing and money for the Housing Trust Fund. Homebuilders pay into the fund, and in return, the city removes some mostly-bad zoning restrictions that arbitrarily cap how much housing can be built on a piece of land. It doesn’t cost the city anything to relax these regulations, and in reality, it increases tax money to the city whenever they do this, even apart from the in-lieu fee payments. 

There are no important downsides to funding the Housing Trust Fund this way. And as a general proposition, it’s been very popular as a program and a very successful funding source.

That’s why it was so concerning to see some City Councilmembers introducing a bill (210474) last week that would substantially dismantle this program, setting up certain losses for the Housing Trust Fund and all the important programs and services that it funds.

The details are wonky, but the broad summary is that the bill would level down on almost all fronts. It would make the in-lieu fee option more expensive to use, fully barring its use for the smaller building types that have used the program the most. But then it also doesn’t increase the on-site density bonuses commensurately to make that option functional, let alone popular. And in fact, it would actually level down the existing density bonuses for some unexplained reason.

Getting more on-site housing in addition to all the Housing Trust Fund tax revenue would be great, of course, if that’s what City Council really wanted to do. But so far they’ve shown very little interest in the feasibility question of what zoning changes would be required to make it actually successful—defined by high rates of affordable housing permitting in the real world—and not just an empty symbolic gesture that sounds nice, but ultimately yields very little housing.

The last time this program was debated, Council started out with some strong legislative language around the zoning bonuses that seemed likely to produce a lot of affordable housing units. But then as time went on, they kept bargaining against the goal of abundant affordable housing, instead choosing to center other, less deserving goals that ought to have been much lower-priority, like parking and people’s issues with sharing the neighborhood with renters.

And with the new bill from Councilmembers Maria Quinones-Sanchez and Jamie Gauthier, we’re once again seeing the same trend playing out. The new Mixed-Income amendment bill reads as though it is trying to forge a compromise between people who don’t really want to see any new housing, and people who only want a token amount of affordable housing. 

With every change, the bill chooses to level down the amount of affordable housing that we could get, in favor of weakening the density incentives that have made the program so popular. Rather than leveling up the density bonuses for on-site affordable housing to be more appealing than the in-lieu fee option—which, again, costs the City nothing—the Councilmembers are proposing to make the program less usable and popular, and produce less tax revenue for affordable housing. And for what?

The main beneficiaries of the bill appear to be people who don’t want any new housing to result from this program, including those who have asserted—without any evidence—that the Mixed-Income Housing bonus program has been responsible for a few rowhouse demolition decisions in Graduate Hospital. 

Tragically, the usually-right Inquirer architecture critic Inga Saffron had written two misguided columns on this topic that first spurred 2nd District Councilmember Kenyatta Johnson to introduce the insane concept of a zipcode-based zoning overlay curtailing the Mixed-Income Housing program in 19146, and apparently it has now inspired some changes to the citywide laws. 

The most wrong-headed idea in the bill is that the smaller ‘Missing Middle’ zoning categories should have a much higher standard of regulation, and less access to density bonuses, than the categories for larger mid-rise and high-rise buildings. This gets the issue exactly backwards. 

Above a certain height, mid-rise and high-rise buildings can benefit from economies of scale to their construction costs, and the expectation that more below-market homes should be included on-site is a lot more reasonable. For smaller mixed-use buildings and apartment buildings of the kind you might see on commercial corridors outside of Center City, it makes more sense to leave some more flexibility to pay into the Housing Trust Fund to make more small, less remunerative projects work financially, and avoid having to go through the expensive zoning variance process.

While the Mixed-Income Housing program has been unfairly and inaccurately blamed for driving demolitions in one part of the city (Graduate Hospital) there are numerous unsung success stories for reuse projects where the option to pay into the Housing Trust Fund has tipped the scale toward preservation rather than demolition.

One of the best examples of this is the building on the corner of Columbus Square Park at 1201 Wharton, a 100-year-old warehouse that was able to be converted into 10 homes and a commercial space by-right, by paying a tax to the Housing Trust Fund. 

(Image: 1201 Wharton | Flow) 

When the project was first reported on, it was going to need a variance from the Zoning Board of Adjustment in order to build 10 units, since the base zoning doesn’t allow for that many. But because of the Mixed-Income Housing program, they were able to pay a tax to the city’s Housing Trust Fund, and build a couple of extra homes to make the project work without having to go for a variance. And instead of paying a zoning lawyer to waste the time of the civic associations, the ZBA board members, the Planning Commission, and the Council office just to get a couple of additional homes, they simply paid some more taxes to the City instead and skipped that whole ordeal.

This is a win.

A building is preserved (despite not being historically-designated), a pricey neighborhood gets some more rental housing, nobody’s time is wasted on pointless hearings, and the City gets some more tax money for affordable housing programs. 

If you go to eClipse and look at the zoning permits using the Mixed-Income Housing program bonus, you’ll find quite a few great reuse cases and other 1201 Wharton-type reuse projects, and this is the exact kind of thing we should all want to encourage. It seems pretty likely the Wharton project would not have happened with the much more expensive on-site below-market housing requirement in place, in which case you’d still have an empty warehouse on the corner. Or somebody might have eventually torn it down and replaced it with a smaller number of large new townhouses. 

The height bonus reductions in the bill are another good example of an area where the Council sponsors are proposing to needlessly sacrifice effectiveness in order to offer an olive branch to Not-In-My-Backyard activists who fundamentally do not want to see any new apartment buildings get built anywhere. This change will not buy the Councilmembers one ounce of political credit with the intended audience for those concessions. What it will do is make the program function less well, and produce less Housing Trust Fund tax revenue and affordable housing than it otherwise could. 

And this is where elected officials really need to ask themselves what it is they are trying to accomplish with these changes. Is it their goal to increase the total amount of affordable housing being produced? Why pre-compromise against that goal by making changes to the bonus language that would reduce the prospects of getting more affordable housing units or more revenue for the Housing Trust Fund? Who is helped by this? 

The original policy framework for the Mixed-Income Housing program—more density for more affordabilty—is a good, stable political framework that City Council can continue to build on further. It shouldn’t get lost in the process of amending the law. Because the additional density is free and limitless for the city to supply, there is always a way to further level-up the incentives to get more of what everybody wants, rather than getting less. 

If elected officials really take seriously their own rhetoric about a housing affordability crisis in the city, then they should reject the calls to level-down and do less. Any changes Council makes should instead leave behind a program that is more popular, raises more tax money, and creates more total affordable housing all across Philadelphia.

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