There are mysteries and there are puzzles. A mystery is complex, opaque, and may not have a satisfying answer, while a puzzle has an objective solution even if it is challenging to achieve. The prevalence of vacant and underutilized land and buildings in Philadelphia that could provide high-quality affordable housing for city residents is a puzzle, not a mystery. The main barrier is that the cost of development relative to the income of city residents and their ability to afford rent or a mortgage has made it economically infeasible to redevelop much of the city’s vacant property without subsidy.
This would be frustrating even if the city wasn’t in the midst of an affordable housing crisis, but it is especially so at a time when many Philadelphians pay exorbitant prices for substandard rental housing. A national solution – public policy and investment designed to incentivize affordable homeownership at scale – has proven elusive so far, even at a time of massive new federal spending on other forms of infrastructure. The good news is that due to the efforts of local stakeholders, creative policy solutions, and the democratization of data access, Philadelphia is positioned for progress.
Ensuring that all Philadelphians have access to high-quality housing affordable at their income level requires assembling many different puzzle pieces to create a holistic approach. The solutions that meet the needs of a household headed by one or more adults earning annual income of $30,900 (the 2023 median figure in Allegheny West, as an example) will be different from the resources that must be in place to support individuals who are experiencing homelessness and are unable to work due to disability or illness. Opportunities for individuals and families to create generational wealth through homeownership can exist alongside initiatives that prioritize the development of permanently affordable rental housing and supportive housing.
Turn The Key
One important and scalable piece of the Philadelphia housing puzzle supports low-to-moderate income homebuyers, redevelops publicly owned properties that would otherwise sit vacant, and allows more equitable access to the market for small, private developers. This model builds generational wealth through homeownership, and we aim here to explore the details of how it works, and identify ways to scale and replicate it in Philadelphia and beyond. In doing so, we recognize that this is only one aspect of housing needs across Philadelphia and other cities, and that a holistic strategy must address the full range of opportunities and needs of residents.
Over the past decade, Philadelphia established a Land Bank to manage the disposition of vacant publicly-owned property and enacted an affordable housing ordinance allowing for the sale of public land through the Land Bank at nominal cost ($1,000 per parcel) if a majority of the housing constructed on a set of parcels is deed restricted as affordable for at least 15 years. In 2022, City Council enacted Turn The Key (TTK), which provides up to $75,000 in down payment assistance to income-qualified homebuyers purchasing new homes built on formerly city-owned parcels.
A typical TTK house is a three-bedroom rowhome, approximately 1,100 square feet, buildable by right, and deed-restricted as affordable for 15 years. It carries a maximum purchase price of $280,000, with the City providing up to $75,000 in down payment assistance to the homebuyer (in the form of a 0% interest, 100% forgivable loan), plus up to $10,000 in grant funding for closing costs. Participating homebuyers are typically left with a mortgage of under $200,000 and a monthly mortgage payment of around $1,300 – $1,400 per month.
By comparison, the monthly rental cost of a brand new three-bedroom home in Philadelphia, or in many other major cities, starts at $2,000 to $2,500 and can range significantly above that depending on the market factors. Homeownership offers both protection against broader increases in the cost of housing and a way to build generational wealth. Under TTK, homebuyers get close to $125,000 in instant equity in the house. And should interest rates return to pre-COVID levels, a TTK homebuyer will be able to refinance their monthly payments down to around $1,000 per month.
Engaging New Developers
Important, intentional work has also been done to cultivate and engage a new generation of Black and Brown developers to responsibly build affordable housing and sustainably grow their businesses. The Philadelphia Housing Development Corporation launched its Minority Developer Program in 2020 and the privately organized “Philly Rise” Accelerator recently graduated its first cohort of minority developers. Other emerging developers are participants in the Building Industry Association Urban Developers Association mentor cohort, and still others graduated from Jumpstart Germantown or a similar training program.
The upshot is that Philadelphia now has a growing bench of largely Black- and Brown-owned development firms prepared to help build the quality, affordable housing Philadelphians need. The Philadelphia Accelerator Fund has had some early success with financing graduates of these programs, particularly for rehabilitation of existing properties for rental housing. But building new construction on vacant city property for homeownership is more challenging, mostly due to the economics of development in the city.
You can turn a profit as a responsible developer building quality affordable housing in Philadelphia, but it’s not easy and it’s not necessarily lucrative. After accounting for materials, labor, and soft costs such as design and permitting, as well as operating expenses, financing and other fees, and taxes, the development of TTK units typically generate a profit margin of 10% to 15% per house for the developer. This does not take into account the impacts of bad weather, supply chain disruptions, permitting delays, or unexpected environmental remediation. An affordable housing developer can reasonably plan to net $20,000 in profit on the sale of one of these homes, but also risks losing money if expenses climb too high.
The growing network of small developers has tremendous potential to support the scaling of initiatives like TTK in a way that creates pathways to wealth creation for these entrepreneurs as well as the homeowners. One new tool with great potential to support site identification and selection is the no-cost access local developers now have to a customized version of the Building Blocks technology platform. This opportunity recently launched in Philadelphia (among other pilot cities) through a collaboration between Accelerator for America and tech-development firm Tolemi with the Philadelphia Accelerator Fund and the Philadelphia Energy Authority.
Building Blocks aggregates municipal data and applies proprietary analytics, enabling small developers to do sophisticated research on a) where it makes economic sense to build, b) what type of housing fits the needs of individual communities, c) identifying the owners of developable properties who may be open to selling, and a great deal more. With nearly 40,000 vacant parcels in the City of Philadelphia and innumerable dilapidated structures owned by out-of-state shell companies, access to data through tools like BuildingBlocks can be critical for data-driven housing development planning.
Taken together, these initiatives constitute one component of a well-considered, effective affordable housing development strategy with the potential to significantly expand the amount of quality affordable housing built on vacant city land by growing Black- and Brown-owned firms and purchased by income-qualified homebuyers who can build wealth through ownership. This is as close to a win-win-win as we could reasonably hope for.
There has been recent progress on this front – at its July 2024 board meeting, the Land Bank approved seven TTK projects, all to be developed by Black and Brown participants in the developer training programs alluded to earlier. This will ultimately create more than 60 units of affordable for sale housing in Mantua and Strawberry Mansion. The recent round of approvals is an excellent start, but there is much more work to be done. Several other developers engaged in training cohorts have projects waiting to be voted on by the Land Bank board. If approved, they will construct hundreds of new affordable homes and the city will benefit over the long run by investing in these developers.
Putting the Pieces Together
It is important to acknowledge and address some criticisms of TTK. One common challenge is that the housing being subsidized via TTK does not benefit many city residents who cannot afford a $1,300 mortgage payment. This is where a holistic perspective on the housing puzzle is essential, because not all programs can be all things to all Philadelphia residents.
Rental subsidies available through the Housing Choice Voucher (HCV) program achieves deeper affordability for tenants who need it, though without the equity-building component of TTK. Federally subsidized Low Income Housing Tax Credit (LIHTC) projects create deeply affordable new rental units, often with a supportive housing component. Both HCV and LIHTC are vital resources for housing those Philadelphians who presently lack the income for TTK homeownership.
Many Philadelphians are also sour on new development in general and on private developers in particular. Private developers with strong access to capital typically serve either the high end of the market or the very low end of the market and develop privately owned land. Despite rising interest rates and construction costs, it is still profitable to develop luxury homes in already high-income or gentrifying neighborhoods in Philadelphia. And on the very low end are exploitative absentee landlords adept at accessing tenant subsidy programs and making as little capital investment in their properties as possible. Given this reality, public policy should be designed to incentivize responsible developers to build quality affordable housing and fill the gap that isn’t always served by the invisible hand of the market.
As publications from Drexel University’s Nowak Metro Finance Lab and Accelerator for America have shown, large-scale corporate investment has had a significant impact in many communities in recent years, crowding out smaller, local landlords. At a recent meeting of the Data for Housing Solutions cohort, Drexel’s Benjamin Preis outlined how ownership within rental markets has increasingly concentrated over the last two decades and that those larger landlords have much more extensive insights into rental markets than small landlords or individuals. His research has also found that higher levels of ownership concentration are correlated with higher rents. Continuing to leverage data partnerships and tools will allow the City and their partners to tailor policies and interventions to specific neighborhood conditions and share information with locally-based, responsible developers.
Philadelphia’s affordable housing challenge demands bold action, and the city is rising to meet it. Initiatives like Turn The Key are more than just policies—they’re lifelines for low-to-moderate income families dreaming of homeownership, catalysts for transforming neglected properties, and launchpads for diverse, small-scale developers. By taking a multi-faceted approach to the affordable housing puzzle and embracing data-driven solutions, Philadelphia can achieve a future where safe, affordable housing isn’t just an aspiration, but a reality for all.
This content is part of Econsult Solutions’ thought leadership initiative, ESI Center for the Future of Cities, which brings together experts in urban economics, policy, and strategy to craft new evidence-based research on the most important issues facing cities around the world, and to provide consulting services for public and private sector organizations working in urban settings.
Anne Bovaird Nevins is an ESI senior advisor and senior economic and community development executive with nearly two decades of experience in the field. Anne currently serves as Director of Economic Development with Accelerator for America (AFA), a national nonprofit organization that finds and develops solutions to drive equitable economic and community development and shares them with cities to create national change from the ground up. Accelerator for America is led by an Advisory Council comprising mayors, corporate and non-profit executives, and labor leaders from across the U.S.
David Langlieb has served as Executive Director of the Philadelphia Accelerator Fund since October of 2022. Prior to joining the fund, he spent five years as Senior Underwriter with New Jersey Community Capital, and nine years with the Philadelphia Industrial Development Corporation (PIDC), culminating as Vice President of Business Lending. He is a board member at Impact Loan Fund and has authored three travel guides, including the recent second edition of Backroads and Byways of Pennsylvania.