Opinion: Affording Affordability in Philadelphia

By David Langlieb 

The evolution of Philadelphia’s built environment and its economic history are helpful for understanding today’s affordable housing challenges. Two circumstances in particular distinguished 18th and 19th century Philadelphia from its early American peer cities – first, the city drew a disproportionate number of skilled craftspeople escaping religious oppression. Second, its geographic proximity to the commonwealth’s extraordinarily rich and varied portfolio of natural resources —ultimately linked by canals and railroads— helped put these early immigrants and future generations of Philadelphians to work.  

These occurrences are why the city became known as ‘Workshop of the World’ during the industrial era and well into the 20th century, with an economy concentrated in specialized manufacturing of higher end, finished goods. At its post-war demographic peak in the early 1950s, 45 percent of Philadelphia’s employment was in manufacturing. Comparatively, New York City peaked at just under 33 percent and Boston at approximately 19 percent. The predominance of specialized, skilled manufacturing in Philadelphia built a middle class with high rates of homeownership.  

Of course, the rise and fall of American manufacturing over the last several decades is news to no one; what is atypical about Philadelphia is the degree to which skilled, neighborhood-based manufacturing shaped its growth and how disproportionately reliant the city became on these jobs. Being Workshop to the World helped create an extraordinary city, but left Philadelphia especially vulnerable to a more permanent shift away from its manufacturing base once the economic headwinds grew too stiff. Today, Philadelphia is the poorest of the 25 largest cities in the country. While considerable work has been done to transform the city’s jobs base, the trajectory of local employment has tended towards economic inequality – employment growth in recent years has been concentrated in hourly wage service sector jobs and higher salaried positions in the meds and eds.  

This dynamic presents a diabolical problem from the perspective of quality affordable housing in Philadelphia. In essence, what we have is a city built for the middle class being retrofit for low-income and high-income households at the same time. This is why we see $750,000 rowhomes with Viking ranges and roof decks across the street from rundown rental properties managed by absentee landlords. The former portends gentrification, and the latter imperils and exploits tenants.  

To the credit of many stakeholders both inside and outside city government, there has been a strategic focus on making quality affordable housing economically viable. The city’s 2018 Housing Action Plan contained several excellent recommendations, including the creation of a new loan fund aimed at investing in affordable housing. This ultimately came to fruition, and I was brought on last year as full-time executive director of the Philadelphia Accelerator Fund (PAF). While we are still a small organization, we have tools at our disposal which were designed to pull residential development activity within the city towards quality affordable housing.  

Quality affordable housing is broadly beneficial if properly developed. First, it meets the immediate need of sheltering city residents who lack access to safe, comfortable accommodations. At the same time, it helps build generational wealth among homeowners, particularly Black households overcoming ancestral discrimination by the Home Owners’ Loan Corporation and the Federal Housing Authority. Even affordable rental housing helps households build generational wealth, as a family spending 60-70% of pretax income on rent will have a nearly impossible time getting ahead.     

There are several non-profits doing affordable housing lending in the city, but there had not, until PAF, been an organization exclusively committed to affordable housing finance in Philadelphia with a focus on financing small developers. Black and brown owned development firms are a specific focus of the fund, and we are especially inclined to finance developers building affordable housing in their own communities. Critically, our capital can do almost anything, including predevelopment debt, acquisition debt, and mezzanine debt structured to de-risk a transaction for a senior lender. This enables us to be nimble and project-specific in a market where that matters.  

For starters, our financing can be used for ground-up construction on vacant property, which currently constitutes around 12% of the city’s land. A portion of this property is owned by the city Land Bank, which is positioned to sell land at nominal cost for community-based affordable development projects. For Land Bank dispositions, PAF provides financing to developers who lack access to bank debt and who are willing to meet a threshold level of deed-restricted affordability. Small developers, especially ones who are investing in their own communities, are a particular focus. Many employ local residents, returning citizens, and at-risk youth from the communities in which they build. 

For private transactions, PAF serves as a low-cost alternative to hard money lenders who squeeze the profit out of small projects. PAF debt is priced roughly in line with bank debt, with rates a point or so above what wealthy developers with access to traditional credit typically pay. These kinds of transactions, even if they only finance the rehab of a couple single family shells, also help small developers ‘scale up’ their activities and build their personal balance sheet. We need legions of local developers to do this work and wherever possible we use our financing to help them grow.  

For projects with exceptional levels of affordability which have either secured the necessary subsidy (Low Income Housing Tax Credits, for example) or are in the process of securing subsidy, PAF provides the “but for” financing sufficient to make the deal pencil. This is generally predevelopment financing, which is the first money into a deal and carries the most significant lender risk. The hyper-local focus of PAF makes us acutely aware of where these predevelopment dollars are most effectively deployed.  

No single initiative can reverse decades of disinvestment and rebuild Philadelphia’s middle class. But within the framework of this complex generational project, quality affordable housing built by local developers gets us an exceptionally strong return on investment. PAF prioritizes those investments, figuring out where our financing fits on a project-by-project basis and helping to build all the quality affordable housing we can. 

David Langlieb is the Executive Director of the Philadelphia Accelerator Fund. He previously served as Senior Underwriter for New Jersey Community Capital and was Vice President of Business Lending with the Philadelphia Industrial Development Corporation 

PHOTO: Exterior of High Victorian style 4124-28 Parkside Avenue. The Philadelphia Accelerator Fund provided a $1.3 million mezzanine loan enabling Fine Print Construction to restore the gutted interior and complete 17 rental apartments, nine of which are deed-restricted as affordable. Photo: Dawud Bey