By Scott Calvert
Philadelphia's City Council is weighing a proposed 1% tax on
construction to raise millions of dollars for affordable-housing
programs, marking the latest push by a U.S. city to address rising
residential costs.
The council could pass the new tax this week, setting up a
possible showdown with Democratic Mayor Jim Kenney, whose
administration warns the levy would hurt the city's competitiveness
as it vies to land Amazon.com Inc.'s second headquarters.
The debate has made odd bedfellows. The Building Industry
Association of Philadelphia, which mainly represents residential
developers, backs the tax, as do many affordable-housing advocates.
Opponents include other business groups, such as the local Chamber
of Commerce, and the building trades union, whose business manager
calls the proposed tax "dumb."
The measure cleared a council committee and has the support of
Council President Darrell Clarke. The plan is aimed at "putting
Philadelphians first and ensuring that Philly retains its character
as a diverse, affordable and welcoming city," Mr. Clarke said.
The construction tax would apply to most residential, commercial
and industrial projects and would be calculated based on costs
listed on building permits. Money raised would be used to give
qualifying home buyers as much as $10,000 for down payments and
closing costs. Both private and nonprofit developers also would be
able to access funds for affordable-housing projects.
Backers say the tax could raise $22 million a year.
Though Philadelphia has the highest poverty rate among the 10
largest U.S. cities, housing values have risen sharply in areas
close to Center City, driven by an influx of professionals. For
example, since 2014, the median home value in the once-gritty
Fishtown neighborhood has jumped more than 50% to around $270,000,
according to home-search website Zillow.
Philadelphia is one of many cities grappling with soaring
housing costs, as the problem stretches beyond traditional
high-cost areas like New York and San Francisco. Detroit last year
passed a law that requires developers getting city subsidies or
discounted land to reserve 20% of units for lower-income
households. Atlanta now mandates developers to set aside new units
for low-income families in certain gentrifying areas.
In Philadelphia, the proposed 1% tax emerged after another idea
stalled that would have required property developers to set aside
10% of new projects as below-market units, or else pay into the
city's housing trust fund. Elements of that plan are part of the
construction-tax package, though the set-asides allowing developers
to build taller and denser buildings would be voluntary and the
density bonuses enhanced.
The building association opposed that earlier proposal but
supports the 1% tax. "It was a difficult decision. Most industry
groups don't agree to tax themselves," said developer Leo
Addimando, the association's vice president and managing partner at
Alterra Property Group LLC.
But, he noted, some housing advocates don't like aspects of the
current proposal, such as one that extends assistance higher up the
income ladder to families of four making $105,000 per year.
"No one's really happy with it," Mr. Addimando said. "I think
it's a pretty good compromise."
The city's housing trust fund brings in and spends about $13
million a year, nowhere near enough to help everyone with housing
needs, including basic repairs, said Beth McConnell, policy
director at the Philadelphia Association of Community Development
Corporations.
"We have an overwhelming number of households facing housing
instability and insecurity on a regular basis," she said.
But the Kenney administration worries about both the
administrative challenges and the effect on the city's business
climate, said James Engler, deputy mayor for policy and
legislation.
The city has "a pretty onerous taxing system," he said. "Adding
an additional tax to that didn't seem like the most effective thing
for us to do at this point, especially when we're in a national
competition for the Amazon headquarters."
Philadelphia is one of 20 U.S. locations Amazon is considering
for its second headquarters. The city hasn't disclosed the tax
incentives it has offered the Seattle-based company, which is
expected to announce a decision this year.
Mr. Engler declined to say if Mr. Kenney would veto the measure,
saying it hasn't passed the 17-member council. It would take 12
votes to override a veto.
The local chapter of NAIOP, an association of commercial
real-estate companies, opposes the tax and worries it would weaken
what spokeswoman Lauren Gilchrist called Philadelphia's
"renaissance."
"It will absolutely increase costs for construction in an
already expensive construction environment," she said. Her group
instead advocates a comprehensive evaluation of how the city taxes
real estate.
John Dougherty, business manager of the Philadelphia Building
and Construction Trades Council, criticized "the terrible timing of
this antibusiness tax proposal."
"This onerous tax proposal at this crucial time essentially
tells Amazon that we're not interested in their business. Dumb," he
wrote in a letter to council members.
But Mr. Addimando said he doubts the new tax would affect
Amazon's decision. He called it a necessary step that would make a
small dent in the city's growing housing affordability and
availability problem.
"It will become even more necessary if Amazon comes to town," he
added.
Write to Scott Calvert at scott.calvert@wsj.com
(END) Dow Jones Newswires
June 11, 2018 05:44 ET (09:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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