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Philly's First Mandatory Inclusionary Zoning Law Is Official, And It Takes Effect In 6 Months

Philadelphia's first-ever mandatory inclusionary zoning law takes effect in six months, though whether it will lead to the intended affordable housing gains remains an open question.

Post Brothers President Matt Pestronk, Philadelphia City Councilmember Maria Quiñones-Sanchez and Center City District CEO Paul Levy

On Jan. 18, Mayor Jim Kenney signed into law Philadelphia City Council Bill No. 210633, which requires any new residential buildings of 20 units or more to set aside 20% of those units for affordable housing.

The law only applies to parts of Council Districts 3 and 7, including the entirety of University City and a portion of rapidly developing Olde Kensington, placing the new rules at the center of housing policy debates about displacement, gentrification and density.

As with nearly every major metropolitan area, Philadelphia’s average rental rate skyrocketed over the past year.

Though the city’s multifamily pipeline is more full than it has ever been, it still lags well behind the demand, especially in terms of for-sale units. That context motivated the bill’s co-sponsors, Councilmembers Jamie Gauthier and Maria Quiñones-Sánchez, who represent the affected districts, and Kenyatta Johnson, whose District 2 was not affected. None of the three councilmembers’ offices returned requests for comment.

“There should be opportunities to have mixed-income housing with a component of affordability, so that people can continue to live close to where they grew up, and close to family members,” said Maria Gonzalez, president and CEO of HACE Community Development Corp., a nonprofit that counts affordable housing development among its initiatives. 

The portion of Council District 3 in Philadelphia that is subject to mandatory inclusionary zoning as of July 18, 2022.

The Olde Kensington overlay created by the law overlaps with HACE’s service area, where a heavily Latino population is feeling the pressure of an ongoing wave of development bringing higher-income households to the area. Gonzalez spoke to Councilmember Quiñones-Sánchez once before the bill’s passage to express her support, she told Bisnow. Much of University City and Olde Kensington have so much demand for multifamily, and so much construction going on already, that market-rate rents should be able to subsidize the affordable component mandated by the new law, she said.

“As Latinos, being near family is an important support system for us, especially when raising children,” Gonzalez said. “So families should be able to benefit from all the positive things that are going on in the neighborhood, but they can’t afford to rent or buy. And there should be a space for that to happen.”

Critics of the law, which include virtually the entire for-profit development industry in the city and Lindy Institute for Urban Innovation at Drexel University senior research fellow Kevin Gillen, say that Philadelphia housing doesn’t achieve the market-rate rents and home prices necessary to keep development going in the affected areas. 

“You can’t build affordable housing in the private market in Philadelphia; you need subsidies,” Gillen told Bisnow. “That’s not because developers are biased or something; it’s just reflective of the cost of construction in Philadelphia.”

The largest of three areas within Philadelphia Council District 7 affected by the mandatory inclusionary zoning bill, including both rapidly developing and severely disadvantaged parts of Kensington.

The most high-profile areas of the country with mandatory inclusionary zoning laws are California, Massachusetts and New York, all of which have pricier housing markets than Philadelphia, Gillen said, citing research he conducted on the subject in 2017. A familiar saying in the city’s real estate community says that it has Baltimore rents, but with New York’s construction costs.

For rental properties in the areas affected by the new law, the affordable housing portion would be restricted to households making at most 40% of the area median income, with for-sale units restricted to households making at most 60% of the area median income. Total costs, whether rent and utilities or mortgage and tax payments, are not to exceed 30% of the household’s income, the standard set by the U.S. Department of Housing and Urban Development

Within the areas affected by the bill, officially known as Mixed Income Neighborhoods Overlay districts, 20% of residences within any property consisting of 20 or more units must be affordable, but only 15% is required to be on-site. The remaining units can either be constructed nearby or accounted for with a payment to the city’s Housing Trust Fund. Similar payments are already on the books as an option, but these will be more expensive and only allowed in exceptional circumstances.

Properties subject to the law will still receive height and density bonuses similar to those available under the city’s voluntary inclusionary housing policy.

The second of three portions of Philadelphia Council District 7 affected by the mandatory inclusionary zoning bill.

Developers will look to avoid being subject to the law whenever possible, said Ken Weinstein, president of mixed-use development company Philly Office Retail. Companies might rush to get permits pulled for projects in the affected areas ahead of the policy taking effect on July 18. That will especially be true in University City, but perhaps not in the affected District 7 areas that are still very low-income, Weinstein said.

“For projects that were already in design, the architects can rush through construction documents and permits,” he said. “But if you’re sitting on a piece of land and haven't yet started, six months is not enough time to start a major project.”

Another reaction from developers will likely be the construction of 19-unit projects so as not to trigger the policy, Weinstein said.

“You don’t have to look any further than the Civic Design Review rules, where you see a lot of 45- to 49-unit developments happening now to stay under the 50-unit or 50K SF threshold [to trigger a review],” he said. “So absolutely, you’ll see a difference in what developers in the two council districts are building.”

The third, and smallest, of three areas within Philadelphia Council District 7 affected by the mandatory inclusionary zoning bill.

However it happens, unintended consequences always crop up in the wake of new laws. But with the current council, the pace of change to housing policy has been rapid, and it is often done in ways that contradict the idea held by urbanists that density is a key component to housing affordability.

“I don’t see how this will accomplish anything good,” Gillen said. “God bless them for what they’re trying to do, but this could unintentionally achieve the opposite effect of what they’re trying to do.”