Fund It or Replace It
The goal of mixed-income neighborhoods is sound. The mechanism needs to change. Here are four evidence-based recommendations informed by what has worked in other cities.
The Core Design Flaw
MIN’s problem is not the goal of mixed-income neighborhoods. It is the expectation that private developers will absorb the full cost of below-market units with no public contribution. At 40% AMI and current construction costs, the gap between market rents and affordable rents makes the math impossible for most projects.
Consider a 1-bedroom apartment in University City. Market rent is approximately $2,200/month. The maximum rent at 40% AMI is $860/month. That’s a gap of $1,340/month per unit — $16,080 per year. Over MIN’s 50-year compliance period, the present value of that gap is approximately $175,000–$225,000 per affordable unit, depending on discount rate assumptions.
For a 50-unit project required to set aside 10 units at 40% AMI, that represents $1.75–$2.25 million in unfunded cost. No market-rate developer can absorb that without making the project unviable. The result is what our data shows: they don’t build.
Four Recommendations
Fund the gap
Calculate the actual difference between market rents and 40% AMI rents in MIN zones. At current University City market rents (~$2,200/mo for a 1BR) vs. 40% AMI (~$850/mo), the annual per-unit gap is ~$16,200. Over a 15-year compliance period, that's ~$175K–$225K per unit — comparable to Portland's $220K subsidy. Use AHTF, tax abatement savings, and PILOT revenue to close this gap.
Adjust the rates and ratios
MIN's 20% at 40% AMI is among the most aggressive unfunded inclusionary requirements in the country. Portland's funded program offers flexibility: 10% at 60% AMI or 20% at 80% AMI. Philadelphia should align set-aside percentages and AMI targets with what the market can deliver, given funding levels.
Expand the TOD radius
The current 500-foot TOD overlay is too small to capture meaningful development potential. The TOC bill's quarter-mile radius is a better starting point, but it must be paired with modified affordability requirements — not layered on top of MIN's unfunded mandate.
Require calibration studies
Oregon SB 1521 requires jurisdictions to regularly evaluate whether their inclusionary programs are fully funded. Philadelphia should adopt the same self-evaluation requirement, ensuring the affordability mandate never exceeds the available subsidy.
What Fully Funded IZ Could Look Like in Philadelphia
Portland’s reformed program provides a template. Adapting it to Philadelphia’s context:
| Element | Current MIN | Portland Model | Possible Philly Reform |
|---|---|---|---|
| Set-aside | 20% at 40% AMI | 10% at 60% or 20% at 80% | 15% at 50% AMI (or tiered options) |
| Public subsidy | None | ~$220K/unit via tax exemption | Property tax abatement + AHTF contribution |
| Fee-in-lieu | Banned | N/A (subsidy replaces fee) | Restore for projects that can't provide on-site |
| Trigger | 10+ units | 20+ units | 15+ units (reduces small-project burden) |
| Deed restriction | 50 years | 99 years (funded) | 30 years (align with Baltimore/Chicago norm) |
| Calibration | None | Regular review | Biennial review tied to construction cost index |
| Transit interaction | Blocks TOC FAR bonus | Integrated with transit policy | Exempt TOC zones or provide enhanced subsidy |
Why the deed restriction matters for financing
MIN’s 50-year deed restriction is longer than the 30-year norm used by Baltimore and Chicago. Portland and Shoreline use 99 years, but their programs are fully funded — the public subsidy makes the financing work despite the long restriction. Without funding, a 50-year restriction on 20% of units means half a century of below-market revenue that cannot be refinanced or restructured. This exceeds typical construction loan terms (10–15 year hold) and creates a financing burden that compounds the unfunded affordability gap.
Reducing the deed restriction to 30 years — while adding public funding — would align Philadelphia with the national norm, make projects more financeable, and still produce decades of affordability. If the city fully funds the program (as Portland does), a longer restriction becomes feasible because the subsidy closes the gap.
The math can work
Portland’s subsidy of ~$220,000 per affordable unit is comparable to the per-unit gap in Philadelphia’s MIN zones. Funding sources could include: the existing Housing Trust Fund (already receiving $36.3M from MIHB payments), tax abatement savings redirected to affordable housing, PILOT revenue from nonprofit institutions, and state PHARE (Pennsylvania Housing Affordability and Rehabilitation Enhancement) funds. The city already has the revenue infrastructure through MIHB — MIN simply chose not to use it.
What City Council Can Do
Short-term (this session)
- 1.Exempt the TOC zone from MIN’s FAR bonus block. Remove §14-513(5)(a)(.2)’s MIN exclusion. This alone restores ~1,364 housing units in the TOC bill’s yield.
- 2.Restore the fee-in-lieu option in MIN zones. Allow developers to pay into the Housing Trust Fund instead of providing on-site units. This immediately generates revenue for affordable housing programs while removing the construction deterrent.
- 3.Commission a calibration study. Determine the actual cost gap between market and affordable rents in MIN zones and publish the results.
Medium-term (next 1–2 years)
- 4.Design a funded IZ program modeled on Portland and Baltimore’s reforms. Use property tax abatements or AHTF contributions to close the affordability gap.
- 5.Adjust AMI targets and set-aside ratios to levels the market can deliver with available funding. Consider tiered options (Portland offers 10% at 60% AMI or 20% at 80% AMI).
- 6.Build in automatic calibration. Require biennial reviews tied to construction cost indices and market rent data, so the program adjusts to economic reality rather than freezing development when conditions change.
The Choice
The fundamental question is not whether Philadelphia should promote mixed-income development — it should. The question is whether the cost of that goal falls entirely on the private sector (producing 18 affordable units and suppressing thousands of homes) or is shared with the public (producing both affordable and market-rate housing, as Portland now demonstrates).
Every month MIN remains unfunded, an estimated 5 large housing projects that would otherwise be built inside the overlay are not. Each one represents homes for Philadelphia families, affordable units under MIN’s own 20% set-aside, and revenue for the Housing Trust Fund that could repair the homes of low-income homeowners. The evidence is clear. The models exist. The path forward is available.