photo of 4100 Block Parkside Ave
Gentrification is defined as the process of changing the character of a community through the influx of more affluent residents and businesses. British sociologist Ruth Glass was the first to use the term “gentrification” in the 1960s to describe the influx of middle-class people displacing residents of working-class London neighborhoods. Gentrification has been around for more than 50 years and has spread nationwide. In the U.S. during the 1960s/70s it was branded Urban Renewal, but Black people called it “Negro Removal” because that’s what it did. The road to gentrification is paved with decades of redlining, lending discrimination, intentional systemic disinvestment, and government/institutional neglect. The gentrification process involves the displacement of lower-income residents, the physical transformation of the community through the upgrading of housing stock and commercial properties, and changing the cultural identity of the community. Typically, gentrification occurs when an influx of investment into a low-income community is followed by rising property values and higher incomes and education levels of new residents.
As a result of rapid gentrification in some communities, the cost of rental housing in the Philadelphia area has skyrocketed and is a growing problem for low-income and working-class renters. According to the U.S. Census Bureau, 49% of Philadelphia residents spend more than 30% of their income on rent, and 28% spend more than 50% of their income on rent. Statewide, 44% of Pennsylvania residents spend more than 30% of their income on rent and 23% spend more than 50%. Many people are living from paycheck to paycheck and are on the brink of financial instability. The Pennsylvania Landlord Tenant Law has no cap on rent increases and allows landlords to raise rent annually if the lease is for one year and monthly if it is month-to-month. Most state legislators have “overlooked” this fact when they claim to seek remedies for the housing crisis facing their constituents.
Affordable and low-income housing is becoming hard to come by throughout the state. Most developers are only interested in building market rate housing. Small Black and brown developers and community development corporations (CDCs) that want to provide affordable housing in their communities have difficulty accessing financing.
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The Philadelphia Accelerator Fund (PAF) is working to change that by providing a level playing field. Launched in 2019, PAF invests in affordable housing in Philadelphia by providing flexible financing and access to capital for small, historically disadvantaged, and nonprofit developers who have limited capacity to launch a project. The fund has raised $10 million to finance affordable housing projects and aims to create and preserve 6,000 affordable housing units within five years.
“The fund was originally proposed as part of the City’s Housing Action Plan released in October 2018,” said David Langlieb, Executive Director of PAF since 2022. “The primary model for the fund was the San Francisco Housing Accelerator Fund. There, public investment was used to raise private funds for affordable housing. Similarly, our main seed capital was from the city in the form of a loan loss reserve. That capital helped us secure the first round of bank investment – $5 million each from Citizens (Bank) and Univest. As we build our loan portfolio and establish more credibility in the market, we are looking to raise additional capital. Our business plan calls for a $100 million loan fund after five years.”
Partnering with PAF, developers can apply for vacant lots in the Philadelphia Land Bank that are available without competition through the Philadelphia Housing Development Corporation. The law (Ordinance 190606) allows the Land Bank to transfer property to developers for a nominal amount, without requiring competitive bids, for projects with 51% affordable units for at least 15 years. Applications are evaluated based on project viability and social impact. The Fund does not make construction loans, but primarily finances pre-development costs and land acquisition.
Developers accepted into the program are required to include affordable housing in their projects, Langlieb explained. “Every project we finance must, as a strict matter of policy, be majority- affordable housing. That means 51% or more of all units we finance within an individual project must be deed-restricted for 15 years. This applies to both rental housing and housing developed for homeownership. The deed- restriction stays on the property even if our financing is repaid prior to the 15 year term.”
PAF recently closed its first loan and provided $1.3 million in financing to Fine Print Construction, a Philadelphia-based, certified minority-owned developer, for the development of a 17–unit affordable housing project in Philadelphia’s Centennial District. The loan financed acquisition and soft costs for the rehab and renovation of 4124-4128 Parkside Avenue, which includes 17 residential units with a mix of studios, one, two and three bedroom apartments. Nine of the units will be deed-restricted as affordable housing. The fund also helped generate an additional $1.3 million in acquisition and construction financing from New Jersey Community Capital (NJCC), New Jersey’s largest community development financial institution. The loan is NJCC’s first closing in Pennsylvania and its first partnership with PAF.
Joyce Smith, interim president of Centennial Parkside CDC, is open but cautious about the fund’s long-term impact on gentrification. Centennial Parkside CDC is committed to preserving, promoting, and revitalizing East Parkside through partnerships that engage residents, increase opportunity and grow a diverse, thriving community.
“East Parkside is experiencing an uptick in variances — developers are building high-density, market-rate projects,” said Smith, who participated in a PAF webinar. “East Parkside is a very low-income neighborhood and most residents cannot afford these rents. So, deep affordability would be ideal! But realistically you may have to balance market rate to “subsidize” more affordable. It concerns me that the program’s affordable homes have a limited timeline of 15 years. There is a long-standing need to balance the development field to provide more opportunities for developers of color. Minority developers may not have a competitive track record as other developers but may also benefit from technical assistance as well as access to capital. Yes, financial resources are much needed. On the surface it looks positive, because of the social impact and affordability criteria. I would need more info on how the deed restriction impacts the intersection between long-term affordability and gentrification. I’m also questioning the ability of upstarting Black developers’ capacity to do deep affordability because they do not have the bandwidth of capital as established developers and may need to do market rate +projects to sustain their business.”
Langlieb thinks deed-restricting rental units is a longer-term protection against gentrification.
“Even as neighborhood incomes may rise, the deed-restrictions keep rents from increasing more than a percent or two year over year. First, for deals that have subsidy, such as Low Income Housing Tax Credit (LIHTC) transactions, there is often a need for gap financing or ‘firstin’ financing. Subsidies like LIHTC come with very robust affordability requirements attached, including units considered affordable at 20% to 60% of Area Median Income. For non-subsidized projects, we deed-restrict at the maximum viable level of affordability. In areas vulnerable to gentrification, keeping rents in line with the regional affordability restrictions is critical. Our focus on financing small, Black and brown-owned development firms means that in many cases our borrowers can build housing in the communities in which they live and/or where they grew up. We have a couple such borrowers in our pipeline, and we would love to have more. Firms owned by locally-invested developers are attuned to the needs of neighborhood residents and the neighborhood’s built environment. They also have a particular interest in creating a neighborhood economy that keeps wealth within the community and provides employment opportunities for local residents. Eighty percent of our current pipeline consists of Black and brown-owned businesses. The remainder of the pipeline are non-profits which have a specific focus on affordable housing and, in some cases supportive housing.”
PAF hopes to start construction on 350 to 500 new houses with this initial round of funding. Projects in the pipeline include a multi-unit rental project in Germantown, an affordable homeownership project in Norris Square, a rehabilitation project in Cobbs Creek, and infill development on vacant parcels in several neighborhoods.
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