Inclusionary zoning has failed to deliver on affordable housing promise | Editorial

In December 2021, Philadelphia City Council created a new affordable housing program — known as inclusionary zoning — that sounded almost too good to be true.

With no public subsidy, density bonuses, or other financial concessions, developers of new properties with 10 or more units in parts of West Philadelphia and the greater Kensington area were required to set aside 20% of every proposed new development for affordable housing. Given the then-hot real estate market in these areas, supporters pitched the concept as a cost-free way to prevent displacement as neighborhoods changed.

“Philadelphia is in the midst of a full-blown housing crisis. If we continue to do nothing, housing prices will continue to go up, and the Black and brown people who are the backbone of this city will continually be pushed to the fringes,” said Councilmember Jamie Gauthier at the time. Gauthier, along with then-Councilmember Maria Quiñones Sánchez, proposed the bill.

Two years later, the legislation hasn’t lived up to those lofty goals — and it’s clear a new approach is needed.

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Ryan Spak, an affordable housing developer with a track record of delivering new income-restricted housing without public subsidy, predicted that the concept would struggle. Spak told anyone who would listen that the bill would force him to either raise prices to unsustainable levels or to do business outside of West Philly. The math simply didn’t work out.

Gauthier said that while developers might make less money, the potential of adding 200 income-restricted housing units a year was too promising to reverse course. The fruits of the program, however, have been minimal, and even those were achieved only by reopening the door to subsidies.

That’s because, much like Spak predicted, the unfunded mandate led to a near collapse of large multifamily housing development within the restricted areas.

Since enforcement began in July 2022, only five housing projects — with a total of 106 new apartments and fewer than 30 income-restricted units — have received zoning permits within the inclusionary zone. None of them are proposed for Gauthier’s West Philadelphia district, per a document shared by the City Planning Commission. None of them have yet broken ground.

Gauthier’s office says that it’s too soon to judge the inclusionary zoning program, given the general slowdown in real estate development in the city. It is certainly true that high interest rates and construction costs have taken a toll, but the tough real estate environment may be another reason to rethink the requirement. Policymakers often look to affordable housing programs as a way to boost housing production during tough cycles, not constrain it.

Philadelphia is also hardly the only city to see inclusionary zoning struggle to deliver on its potential while drying up new housing production.

Portland, Ore., enacted inclusionary zoning in 2020 and saw a similar decline in the construction of large apartment buildings, with many developers instead opting to reduce the scale of their projects so they did not meet the threshold that required set-asides. The well-meaning measure also seems to raise the cost of existing homes.

California towns with inclusionary zoning saw housing prices increase by 20% relative to towns without it. Those kinds of spikes limit the restrictions’ potential to stave off gentrification. It isn’t much use to provide 30 new affordable apartments if the price of Philadelphia’s existing 700,000-plus homes goes up.

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The promise of affordable housing without subsidies is also unfulfilled. Recipients of housing vouchers, who can pay market-rate rents thanks to a federal subsidy, were initially ineligible for income-restricted units. That’s no longer the case, allowing developers to collect full rent. It is no wonder that nearly all of the interest in the program began after that modification, as the cost to developers has been removed.

This concession, while pragmatic, illustrates the central tension of inclusionary zoning programs. Cities, unfortunately, cannot get something for nothing. Affordable housing — which remains one of Philadelphia’s most pressing needs — requires some kind of subsidy to work.

The good news is that city officials have other tools that could produce more significant amounts of affordable housing without impacting market-rate development.

The affordable housing tax abatement, which has yet to be implemented citywide, the addition of 10,000 housing vouchers, and the city’s Turn the Key program all represent strong opportunities for Council to ensure that Philadelphians at all income levels have access to a new home.

City officials should do the hard work of putting each of those measures in place, rather than taking an easier, if well-intentioned, path to increasing housing affordability that, in cities across the nation, has continued to come up short.