Insider: The Affordable Housing Industrial Complex

McCalla: Darrell Clarke’s plan feeds a monster that consumes scarce resources to build “affordable” homes at exorbitant cost.

Affordable rowhomes in West Philadelphia. | Google Streetview

Affordable rowhomes in West Philadelphia. | Google Streetview

(Update: For a counter-argument, check out this op-ed.)

(Editor’s note: This is an opinion column from a Citified insider. Expect a response to this column in the days to come from Rick Sauer, Executive Director of the Philadelphia Association of Community Development Corporations.)

We may owe a debt to the U.S. Department of Housing & Urban Development for putting on ice part of City Council President Darrell Clarke’s plan for 2,000 new units of “affordable housing.” This seems like a good time for a reality check on the city’s housing strategy, which has long been expensive, inefficient and unimaginative.

HUD says “affordable” is any housing that consumes less than 30 percent of a household’s income. By that standard, Philadelphia has plenty of existing, affordable housing and may not actually need more. West Philly, Cedar Park, Logan, Nicetown/Tioga, Hunting Park, Point Breeze. These neighborhoods — and others — have plenty of houses that can be purchased for $50,000-$70,000 and apartments that rent for $600 monthly. A couple earning $15,000 each can afford a $50,000-$60,000 home. Some folks may need help with the down payment and closing costs, of course, but affordable homes already exist.

The real problem is the “affordable housing establishment.” Collectively, community development corporations, consultants, developers, and the building trades have decreed that “affordable housing” must be brand new construction, requiring a staggering public subsidy of $100,000 — $150,000 per unit. At that rate, $10 million in public spending would fund an anemic 75 units. Extrapolated, 7,500 units would cost taxpayers a brain-bending $1 billion.

Making matters worse? Nobody really has a clue how many “affordable units” we need. There are plenty of bad guesses, however. PHA has what is light-heartedly known as the “waiting list” with about 100,000 citizens “waiting.” The list never gets smaller, because only a tiny fraction of waitlisted households actually get access to PHA housing each year.

Darrell Clarke’s plan aims to provide newly built homes for those who have been priced out (or are being priced out) of their longtime neighborhoods. Of course, nobody knows how many residents are in that situation either. We also don’t know the full cost to taxpayers of the plan, either because Clarke hasn’t figured it out yet, or because he hasn’t disclosed it.

The old formula for creating “affordable housing” is no longer sustainable, due to deep cuts in housing funding from Washington. Now there’s much less federal money to spread around to developers, consultants and Community Development Corporations, and so on. And yet, the constituency for this gilded dinosaur must be sated.

Enter Clarke’s plan, which gives away city-owned land to developers. There’s also the 10-year tax abatement, of course, and a federal housing tax credit. To make the deal more juicy for developers, Clarke forged an agreement with our local building trades to build the homes at a lower labor cost. HUD, for its own wacky reasons, thought the labor rate Clarke negotiated was too low, and has rejected the agreement, though Clarke and the city are still working to win an approval.

But there are other approaches to affordable housing that don’t need the building trades to be in the mix at all.

The Urban Homestead Program was created by the late Council President Joseph E. Coleman and identified vacant properties that could be rehabbed and sold to a low-income family. The city would pay for half the repairs to the abandoned house, and the balance was paid by the new owner via a low interest loan. The new owner would choose the contractor, which eliminates “prevailing wage” provisions — which is the real cost-driver of government construction projects. The program had the added virtues of reducing the city’s inventory of abandoned properties, repopulating neighborhoods and providing steady work to small contractors. The program is defunct, but reviving it is worth consideration. Such an approach could exploit one of the few strengths of the Land Bank, which is the ability to acquire abandoned or tax delinquent property.

Given our highest in the nation big city poverty rate, it is unclear why the Clarke plan provides for the construction of homes that will sell for $180,000 to $230,000; prices that are well above what poverty-level families can afford. These are homes that will sell for about three times what existing homes in some of the same neighborhoods cost. The government has wildly swerved out of its lane and is actually funding and organizing gentrification, while billing the program as a way to mitigate gentrification.

No doubt, the residents of Francisville were delighted to have a recent groundbreaking for 32 new units. No doubt, Mr. Clarke was pleased to wield the shovel. But, there is doubt that our scarce resources are being carefully focused in accordance with the city’s staggering poverty.

Jay McCalla has served as a city deputy managing director, a director for the Redevelopment Authority and as chief of staff to Councilman Rick Mariano.

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