Daniel Denvir put out this affordable housing piece in CityPaper yesterday chronicling the massive wait lists for PHA housing and the cathartic wait list for private-market affordable housing in Philadelphia. It certainly is replete with daunting numbers and exasperations, but it also lacks details about some City policy that has helped reinforce the bad and done little to nothing to amplify the good.
Let’s dig in.
1. Nobody agrees what the term ‘Affordable Housing’ actually means.
Philadelphia hasn’t defined or adopted a clear universal definition of what the various strata of affordable housing are. Self-proclaimed policy experts, workers and boosters in this field have a variety of elaborate to succinct definitions of what affordable housing is.
From a personal finance perspective, if you’re living on your own and supporting yourself, then the amount you should be spending on housing and have enough room to budget the rest of your life should climb no higher than 1/3 of your annual budget, or 33% of your income. This is true if you earn $30,000 as it would be if you earn $300,000 a year. That guideline is based off conforming mortgage orginations and it’s a good yardstick for family sizes of 1 to 5. If you blessed yourself with a family size of 18 you have larger problems to deal with.
At the bottom end of the income scales we start to get into the realm of the absurd. If your income is $17,000 a year, $467/mo is all the housing you can afford. There are plenty of inherited property owners in Philadelphia who have income levels this low and it’s why their houses are decaying all around them. Even if you haven’t taken a mortgage out on the house you got for free, a $5,000 roof replacement will wipe you out.
At these income levels the only thing that makes sense is renting. You can certainly rent single rooms for $467 and as low as $250 in Philadelphia, but renting whole houses or units inside make-shift rowhome-to-apartment conversions becomes an impossibility even in the worst of neighborhoods. Anything below this income level in the private market you will be doubling or tripling up with other renters.
Construction costs, land costs and labor costs all dictate that new construction will never reach this income level or below it. To pretend that it’s even possible is living in fantasy. It’s certainly possible for those in the $30,000/yr income brackets and higher, but only through shortcuts and subsidies. That is accomplished in Philly by a mix of non-union labor contractors, the City giving away land and direct subsidies when they come available, like the Neighborhood Stabilization Program funding.
The most logical and sustainable option for these low income levels is PHA or another entity that is sworn to carry the burden of property ownership and making all the repairs and maintenance to the property; meaning that the occupant of the property is “owner in name only”. You can’t make a $17,000/yr income family responsible for an asset that comes with maintenance costs that will wipe out most of their annual income. Replacing a roof costs thousands. This is difficult to achieve and sustain, which is why there are very limited amounts of “faux-homeowners” in Philly.
2. Private market affordable housing developers building to own don’t sell their housing to the “community” local politicians and boosters hold up in need of housing.
I’ve already shown you how affordable housing developers have been caught selling property they are developing at market rate levels.
Point Breeze is the greatest example of where this goes on. Community Ventures has sold a couple properties, specifically 1628 and 1630 Federal Street, for $250,000. With 100% loan to value assistance and low interest rates you still need an income of at least $55,000 to swing that, $65,000 to do it comfortably. At $200,000 you could just go over and buy a market-rate house built by a typical developer.
Meanwhile, long-time Point Breeze residents have been fed lies over the years by the City and also by affordable housing boosters that affordable housing is coming their way. The truth is: nobody is ever going to build new construction sub-$100K homes in Point Breeze. Not without heavy subsidies to a developer to pay the construction, labor and material costs. And even if there were a limitless pot of Federal dollars selling $300K homes at $100K, people buying those homes would only be protected from real estate taxes for 10 years until their abatements expire.
Even with the units being sold at $125K, the sustainability question doesn’t go away. Ultra-low income property owners can’t afford to pay prices to maintain their property. This solution only works for the classes of income in the higher end of the working classes.
The affordable housing developers building to-own houses in Point Breeze already know this reality, and so do the politicians and City agencies working on affordable housing.
Residents currently renting or doubling-up in Point Breeze in sub-$800/mo rentals expecting a home to come their way will continue to be disappointed.
3. The City of Philadelphia has ignored REO Houses
This is the biggest tragedy and the greatest lost opportunity of the Great Recession. Two sections of Philadelphia, the Oak Lanes and the Lower Northeast, had a ton of home foreclosures which then turned into bank-owned or what’s known as “Real Estate Owned” property.
These sections of the City just prior to the recession had high homeownership rates and were the most in need of support as the subprime lending crisis swept across the country.
The Neighborhood Stabilization Program which the Obama administration pressed into existence during his first term as President is a grant program specifically intended to mitigate the damage to communities across America ravaged by foreclosure. As Fannie Mae and Freddie Mac have taken possession of property, NSP grant funding could have been used along with the hammer of accelerated tax foreclosure to pull these properties out of limbo, quickly rehab the properties for far less than the cost of new construction and recycle the foreclosures back into the market as affordable housing.
The City refused to entertain such an idea and instead blew all the money on new construction in a couple neighborhoods closer to Center City.
Instead of getting help, East and West Oak Lane plus the entire Lower Northeast have been left to float in the breeze, then left its housing stock to be snapped up by outside investors who quickly convert the housing to rental. The fast conversion from home-owner occupied to absentee rental is now leading the decline of property values throughout these sections of Philadelphia, further eroding the tax base.
Existing homeowners who have held on to their property have been rewarded with increased quality of life problems and a deteriorating asset. If it’s any consolation, most of these property owners have been reassessed downward and will be getting cheaper property tax bills this December.
4. The City’s Land Disposition Processes is the Slowest in the Entire Galaxy
The City of Philadelphia fails miserably managing real estate because it simply doesn’t understand it. Similarly, it doesn’t know which of its several thousand properties it owns is worth money and could sell for quite well.
Land Bank is a potential step in the right direction by making the disposition process more formal and much more visible than it is now.
Currently the process involves half a dozen agencies, secret emails the public doesn’t get to see, and meetings of the Vacant Property Review Committee that the public isn’t invited to, plus the 10 District Councilmembers whose favor has to be curried from property buyers first. Even now when you put in an Expression Of Interest Form to the City, the request goes into a black hole. If the City doesn’t want to sell a property, it won’t tell you the reason, unless of course it turns into a giant shitshow.
This process means the City takes on more land that it gets off its books. Some members of City Council don’t mind that at all since they can freely give out desirable property to favored constituents who will then sing their praises.
In the long term that isn’t sustainable and it also severely drains City funds and in market-rate neighborhoods the slow dispensation of land actually presses up the price of available private land and improvements. The City experienced this phenomena in the Graduate Hospital neighborhood in the mid 2000s when PHA and the City were both assembling and reserving blocks of parcels which tightened the supply of private market housing. Condo prices near South Street zoomed to $700,000 while just a few blocks away were trash-strewn empty lots closer to Washington Avenue.
5. The City Doesn’t Believe In Infill Development or Rolling Over Sales
Another opportunity the City of Philadelphia will never explore or entertain is the idea of selling property for market-rate development at less than premium and using that to finance affordable housing development or co-developing with PHA.
For instance, if the City sells 100 lots to the private market at $14,000 per lot, it won’t use the $1,400,000 to build affordable housing on another 20 lots it owns in some other section of town or roll it into a development subsidy for affordable housing. Likewise, it won’t “co-develop” with PHA, where the City transfers proceeds of its own sales over to PHA and let the real experts in affordable public housing come up with a solution for those funds.
Instead, the City would rather just not sell the properties at all and if and when it does, it gets tossed into the General Fund where the City pays its regular expenses.
A much cheaper option than new construction is an infill redevelopment program where recent abandoned homes are rehabbed and adjacent vacant properties are in-filled with new construction and then marked at break-even prices so the mortgages to purchase are well within affordable levels for the working classes.
Nope, the City will never do that either.
So, what are affordable housing boosters left to do? Pray for a shower of Federal money that will never come. Tags: affordable housing