By David Langlieb

Anyone who has spent time in Philadelphia’s most disinvested communities will sooner or later come across the tragic spectacle of unsheltered individuals sleeping on sidewalks in front of vacant, untenanted property. This kind of scene presents the city’s affordable housing crisis at its most stark. We have land, we have resources, and we have a high-need population which lacks safe, affordable housing. What we have lacked historically is the collective will to do enough about it.

The June 12^th passage of Mayor Cherelle Parker’s H.O.M.E. Initiative marks the most serious attempt that our elected officials have made in recent memory towards addressing Philadelphia’s housing supply and affordability crisis. This crisis has plagued our city since its postwar population decline began to reverse in the early 2000s. The initiative – of which PAF is a part – comes along just as a burgeoning political movement for more supply and a streamlined development process has begun to pick up speed. As we consider the potential of H.O.M.E. and the deployment of $800 million in bond proceeds, the time is ripe for an honest, comprehensive examination of urban housing policy over the last several decades to help us avoid repeating the mistakes of the past.

There is plenty of blame to go around for societal failures at housing our citizenry, both in Philadelphia specifically and in the country writ large. The abandonment of federal commitments to cities has been a long-term project of the right wing since the election of 1980 and the Reagan-era cuts to housing aid that followed. These policies presaged the deeper, unconscionable cuts that conservatives are presently attempting to make to the Department of Housing and Urban Development (HUD) and the machete being taken to nearly all non-military, discretionary domestic federal spending that keeps at least portions of our weathered social safety net intact.

But as liberal journalists Ezra Klein and Derek Thompson point out in their recently released, carefully argued manifesto Abundance, the activist left needs to own its share of the blame. Ideologically sympathetic to a progressive domestic political program, Klein and Thompson shine light on the uncomfortable truth that it is in the country’s most progressive cities and states where urgent public crises (namely the shortage of affordable housing and new infrastructure) have been the most unsolvable.

The book opens with a demoralizing account of the story of high-speed rail in California, a fiasco now more than 40 years in the making. Since a 1982 bond issuance authorizing the first tranche of funding, only small portions of track have been laid, and the section currently under construction has yet to come anywhere near the state’s major population centers. The most optimistic projections now estimate that a completed system connecting San Francisco, Los Angeles and San Diego by rail will be done in 2050. I was born one year after the initial bond issuance, and I’ll be collecting Social Security by the time that trip is possible.

It didn’t used to be this way in America, and it isn’t this way everywhere. It took barely a year (1931) to complete the Empire State Building in Manhattan – work that was done with vastly inferior technology and more primitive construction methods than we have available today. It costs around $68 million to build a kilometer of railroad track in America on average – three to four times what it costs to build track in authoritarian China, and at least twice what it costs to build in highly developed, democratic Europe.

Klein and Thompson are policy wonks at heart, but the tone of Abundance is sad and sentimental. I share their frustration. We are maddeningly, tantalizingly close to success – green energy technology and efficiencies in construction have driven down the cost of quality, sustainable building throughout the world, but disproportionately beyond our borders. Cheap public debt and historically low interest rates were available to us from the early 1990s through the pandemic-induced inflation of 2020. We could, if we had the will, build a dramatically better country – a more abundant society with more quality affordable housing, more quality infrastructure and a higher quality of life for a greater proportion of our citizenry. And yet we struggle to get out of our own way.

What is the root problem here? Conservatives like to point fingers at union labor costs driving up development and infrastructure budgets, but that fails to explain how heavily unionized European countries like Spain, France, and Germany are nonetheless able to build less expensively than in the United States. Klein and Thompson identify the cold hard truth – well-intentioned reforms designed to enhance local democracy, consumer protections, and environmental safety in the 1960s and 70s have been weaponized to make progressive housing and infrastructure policy extraordinarily difficult to implement. This happens most reliably (and most infuriatingly) in the liberal states and cities where those reforms are most robust and where the greatest number of choke points in the development process have been engineered into the system.

In 1965, Ralph Nader published Unsafe at Any Speed: The Designed-In Dangers of the American Automobile and the book remains a foundational text for left wing activists to this very day. It was important and effectual work, identifying manufacturing flaws in the Chevrolet Corvair and other corners being cut by automobile manufacturers that made cars needlessly dangerous. Unsafe at Any Speed led to numerous design mandates and policy reforms that improved the safety of American highways and automobiles. But as Klein and Thompson argue, the strategies utilized by Nader and his cadre of activists to achieve these gains have had lasting negative effects which need to be reconsidered and countered.

The core tactic of the activist left as pioneered by Nader and his acolytes in the 1960s and 70s was suing the government. This made sense when it came to improving highway safety, but the effect of those early successes was to convince the most publicly engaged progressives that the main purpose of community activism was adversarial pushback and delay – on government to start, but also on private interests utilizing public money, and ultimately on anyone doing anything that has implications of any kind on the community. That covers not just the safety of roads and industrial construction, but also zoning codes and housing density, aesthetic home design, and a litany of other opportunities to introduce choke points in the development process which delay even small, by-right projects and drive up costs.

In operating this way, the tactic eventually became the strategy. Jurisdictions controlled by the activist left made it easier to sue the government and more burdensome for anyone to build. Zoning codes became more restrictive, necessitating variances for even modest increases to housing density and further enshrining uncertainty and delay into the development process. Extensive environmental impact statements are now commonplace even for green energy infrastructure projects being developed primarily to reduce carbon emissions. This has had a detrimental impact on our carbon footprint while simultaneously undercutting the economic development potential and political support for these new technologies. In his review of Abundance, commentator Patrick Ruffini describes the Naderite movement succinctly: “This was a liberalism more interested in suing the government and limiting building projects…than it was in creating jobs for the working class through large-scale public works projects.”

When I say we have lacked the collective will to solve these problems, I do mean collective. The activist left overuses litigation and other tools of delay, but ordinary citizens are far too often reflexively sympathetic to a NIMBY (‘Not In My Back Yard’) ethos that generates community opposition for even minor, buildable-by-right development projects. A more prosperous, more equitable future of affordable housing and infrastructure development can still be possible, but it will require wholesale changes in what we consider to be the role of the public citizen. We will need to be less provincial, less change-averse, and more reflexively supportive of community development. I am hopeful that the deployment of H.O.M.E. funds in particular will not be stymied by needless delays and reflexive NIMBYist opposition. Time will tell.

There is evidence that the message is finally breaking through. Abundance has been on the New York Times bestseller list since its April publication, and the arguments made by Klein and Thompson clearly have resonance. YIMBY (‘Yes In My Back Yard’) activism has begun to establish a foothold in liberal American cities, including Philadelphia. Local efforts at expanding the supply of affordable housing now acknowledge that we are not simply facing a resource problem – we also need a more reliable development process with faster permitting and a more sensible zoning code. The battle lines of the fight and the contours of public opinion are always shifting; but better infrastructure, more quality housing and the future of our city and our country in no small way depend on us embracing an agenda of abundance.

Read below or find the full article here.

Seeded with roughly $11 million in city funds, the Philadelphia Accelerator Fund aims to finance Black and brown developers to build affordable housing.

By David Langlieb

We’re now into our third full year of lending at the Philadelphia Accelerator Fund, and we’ve developed a kind of mantra for allocating our limited resources: maximum units of housing at the most economically viable affordability. It’s not catchy, admittedly, and it’s aspirational. The truth is that our lending priorities – like all of life’s priorities, really – are to some degree in tension with one another.

For example: we can (and do) provide early-stage predevelopment financing into large, multi-unit, deeply affordable Low Income Housing Tax Credit (LIHTC) projects, but those projects can easily take 36 to 48 months to materialize and assembling the full capital stack needed to get shovels in the ground is always complex. We can (and do) provide loans to rehab vacant triplexes which can close in a matter of weeks; but the projects are smaller than multi-family LIHTC and we typically end up with fewer housing units per dollar of investment. We can (and do) provide subordinate debt into multi-family rental projects, as well as predevelopment and subordinate debt into new homeownership units via Philadelphia Land Bank dispositions – also excellent uses of our loan capital, but not without tradeoffs, as securing the requisite senior debt adds time and uncertainty to the process.

And so, as Executive Director of PAF, the ‘zero-sumness’ of our loan capital is constantly front of mind. We are always looking to secure new investor dollars and we’re doing our best to expand the size of the loan fund so we can say ‘yes’ to more projects. While we may not perfectly optimize the utility of every cent within our loan pool, I take certain solace in the view that every unit we finance is at least a step in the right direction. I say this because the reality is that we have a massive housing supply problem in Philadelphia.

The scale of our undersupply was thoroughly demonstrated in the City’s 2018 Housing Action Plan, and while progress has been made over the last few years, the problem continues to loom. An October 2023 study by housing think tank Up For Growth found that the Philadelphia Metropolitan Statistical Area (MSA) was 79,694 housing units below where it needed to be at its current population (making it the tenth most undersupplied American metro).

Given the near impossibility of upzoning at scale in the suburbs and the tens of thousands of vacant parcels within Philadelphia, any realistic effort at building the housing we need regionally will be made within city limits. And it is here where deed-restricted affordability is critical. As most Philadelphians know all too well, keeping housing costs at or below 30% of income – the standard metric for determining affordability – has become extraordinarily difficult. A pre-pandemic Pew Charitable Trust report noted that 54% of renters within the city spend more than 30% of their income on housing. And 68% of Philadelphia households with incomes under $30,000 are spending more than half of their income on housing.

Perceptions and Practicalities

It can be surprisingly difficult to get people to believe that we don’t have enough housing in Philadelphia. Part of the issue is that the most visible new construction projects currently underway are high end high-rise rental developments that serve a very specific market segment – the 1,111-unit development at Broad and Washington and the recently completed 254-unit Josephine development at 17th and Sansom, for example. Residents and landlords alike see the cranes in the skyline and get nervous. How can the city possibly absorb all these new units while our population has pretty much hovered at 1.5 to 1.6 million people since 1990? On August 6, 2024 a splashy Inquirer piece (“Philly Apartment Glut? Developers Worry as Tenants Snap Up Discounted Rents”) lamented that the upcoming completion of new multi-unit rental properties is compelling landlords to make tenant concessions of up to three months free rent on a two-year lease. The article suggests this could be a problem, though it’s difficult to see how a little bit of tenant leverage (after years of rent increases outpacing inflation) is anything but good news.

Anyway, whether or not the luxury rental market has softened, it is a category error to view the city’s housing supply in terms of this one market segment. It is possible (though far from certain) that developers have built more luxury rental units in recent years than prospective residents are willing to pay for at the developers’ preferred rents. Practically speaking, this means we may see increased vacancy on the higher end, and that the market rate rents on these properties may go down. Consequently, lenders may need to restructure or write down a portion of their debt for these properties to cash flow. This would be bad news for certain individual investors and lenders, but it has very little to do with the city’s housing supply as a general matter.

The Scourge of ‘Parasitic Capital’

What exactly happens when a housing development project is postponed or rejected? Who suffers when an attempt at upzoning is rejected or a Land Bank disposition project dies?

Ostensibly, it’s the developer who suffers. And of course, nobody is going to make any money off a development project that doesn’t happen. But far and away, it is the Philadelphia citizenry – renters, prospective homebuyers, and new residents alike – who suffer when units don’t get built. This is especially true when the units which don’t get built were to be deed-restricted for affordability, but it’s true for market rate units as well. The law of supply and demand is as ironclad as it gets, and externally imposed restrictions (zoning, permitting delays, community opposition, etc.) on the amount of buildable housing drives up prices.

It’s actually worse than that, though, because housing scarcity also impacts who buys property in Philadelphia and what they do with it. The artificial scarcity of housing in Philadelphia has been a windfall for exactly the people we don’t want buying up our housing stock – out-of-state investors and well-capitalized, predatory landlords who are best-positioned to make fast cash offers on properties. These investors typically either speculate and hold vacant properties without building any new housing or they increase rents on cash flowing rental properties while keeping capital improvement investment to a bare minimum. In a 2022 piece for the Philadelphia Citizen, Bruce Katz and Lori Bamberger termed this kind of investment ‘parasitic capital’ and that’s exactly what it is.

It would be one thing if rising real estate prices merely increased property values for existing Philadelphia property owners – this would box out new prospective homebuyers, drive up rents, and increase property taxes (all things which have, of course, happened) but it at least keeps localized whatever new wealth is created. Instead, the trend has increasingly been for parasitic capital to chase down more and more Philadelphia real estate and to treat that real estate as an investment first and as housing second.

There’s only one solution to this problem, which is to build new housing.

Working Towards 30,000

Of course, the housing shortage in Philadelphia is no secret and has been a focus of considerable resource deployment and civic energy over the last several years. Most visibly, Mayor Parker has made the construction of new housing a key focus of her mayoralty, having identified a goal of 30,000 units to be built during her administration. This excellent, ambitious goal is partly informed by the 2018 Housing Action Plan, which concluded that at least these many units will be needed by 2030 to house a city of just over 1.6 million people. Creation of the Accelerator Fund as a housing finance tool was among the recommendations made in the plan, and we are proud of our early efforts towards meeting that goal.

But just as we proactively take an ‘all of the above’ approach to new affordable housing development – for sale, rental, LIHTC, Turn the Key, non-subsidized, ground up, rehab, rowhome, and multi-family – so must the broader city housing strategy pursue new housing construction with an ‘all of the above’ mentality. New financing tools like PAF are one piece; expansion of downpayment subsidies, upzoning, automatic density bonuses, streamlined permitting processes, and faster Land Bank dispositions are just a few others. Our capital may be zero-sum, but our capacity to build the housing we need is limited primarily by the restrictions we as a city impose on ourselves.

The civic and political leadership of Philadelphia needs to hear this from the citizenry. Far too often, the loudest voices in the public square are from a small number of people seeking to preserve the status quo. We need not question the motives of those who oppose affordable housing development projects, but we do need to respond. Mayor Parker’s highly public prioritization of 30,000 new homes is evidence of a growing consensus that more housing is needed. Let us build on this consensus with the kind of practical reforms needed to make these new homes a reality.

By David Langlieb

Have the robots taken over yet? Pardon my skepticism, but I turned 40 last year and find myself settling into a curmudgeonly distrust of new technology. I’m not a Luddite, but the truth is I’ve been temperamentally incredulous since second or third grade, so I’m trying to guard against it. The only thing more tedious than an older person complaining about technology is a late millennial complaining about technology.

It is in this spirit with which I’ve processed all the recent fuss over ChatGPT, its competitors, and the advances in artificial intelligence poised to revolutionize white-collar work the way that automation transformed blue-collar work in the latter half of the 20th century. This hits home for me personally, as we’ve been told artificial intelligence will automate the credit analysis business since I started underwriting small business loans in 2013. There are reasons to think it may. Credit analysis is partly math and not terribly sophisticated math. Software already exists that can instantly scan standard inputs like borrower tax returns, personal financial statements, and credit reports and spit out pages of metrics and ratios that would take hours to compile manually on paper or with the help of once cutting-edge technology like Microsoft Excel.

And yet, the labor market within banking and Community Development Financial Institution (CDFI) lending remains exceptionally competitive, with experienced loan officers in record high demand. The “problem” (if you want to call it that) is the same as it is in most industries: the robots can do some things quite well, but to the extent that judgment and creativity are needed to complete the job, there’s still nothing close to a satisfactory substitute for competent human beings.

First-year associates at white-shoe law firms once spent most of their time manually looking up old cases for precedents and citations. The advent of online databases and computer search engines radically transformed this thankless, time-consuming chore. But no one is hiring a chatbot to represent them in court. The closest example – a 2023 personal injury lawsuit brought in Manhattan in which two lawyers submitted a brief written by ChatGPT – resulted in six fictitious cases being included in the brief and the lawyers responsible being laughed out of court and sanctioned thousands of dollars in fines.

Credit analysis is only partly math, and a typical credit decision will account for at least a half dozen subjective factors – borrower character, breadth and quality of experience within a given industry, credibility of projections, and a good deal more. In a sense, the foundational principles of community development lending are hostile to automated underwriting anyway. We are taught, quite correctly, that understanding local markets and industries means finding the gaps in the market that the math can obscure.

Further, at its core, a loan approval process is a negotiation between at least two parties, and negotiations are essentially exercises in trust building. This is true even in the mission-based lending world, where we make every effort to treat our borrowers as partners rather than adversaries. Every loan agreement obligates both lender and borrower to a set of terms and conditions, with a process predicated on both sides living up to their obligations or at least attempting to do so in good faith. Trust is a hard-won and precious commodity in the community lending world, particularly for organizations like PAF which lend to historically disadvantaged communities overcoming centuries of discrimination and abuse from financial institutions.

The question then becomes, can a prospective loan applicant ever trust an automated lender?

I don’t see how. Any automated lending robot programmed by a lender will behave as the lender’s algorithm demands. Thus, a robot programmed by a lender is, by definition, going to pursue the interests of that lender as efficiently and ruthlessly as possible. Following that logic, the more sophisticated a publicly facing lender algorithm becomes, the more distrust it will engender.

Of course, the more complete answer is that yes, a loan applicant can be made to trust an automated lender, but only if that applicant has no other options. This is what is going on right now in the still-nascent fintech (online lender) industry, where the most technologically sophisticated tools in the financial services toolkit are deployed on the most powerless borrowers. A typical fintech lender takes some key inputs (net income, personal guarantor wealth, liquidity, credit score, etc.), runs it through an automated model, and potentially spits out an approval, often within 24-48 hours. But that approval will carry heavy fees and be priced at an exorbitant interest rate constrained only by the usury laws as applied in the lender’s state. Even this turns out to be thin protection – in many states, usury laws have not caught up to fintech lending, and certain lenders have found ways to charge rates up to and over 50% by calling their loans some other name or by incorporating in states with weak regulation.

What has happened is essentially a bifurcation within commercial lending – borrowers without existing bank or CDFI relationships and borrowers in dire straits without any negotiating leverage are compelled to rely on exploitative financial products. Meanwhile, better-positioned borrowers have the time and resources necessary to wait for a living, breathing human being to evaluate their loan application. It is a challenge to the CDFI industry broadly to make our processes as efficient and responsive as possible to discourage borrowers from taking out usurious fintech loans or maxing out their credit cards. That can (and should) involve the selective use of AI to streamline the parts of the underwriting, documentation, and loan approval processes where automation is most effective. And while “same day” loan approvals will never be achievable, our charge should, at the very least, be to provide borrowers with fast term sheets, realistic expectations, and frequent updates as their applications move through the credit analysis and approval process.

The Problem is Never the Technology Itself

The world of commercial lending I describe above is a harsh one, made only harsher by newer technologies better engineered to displace human credit analysts and maximize lender profits. This is at odds with the “techno-optimist” consensus about new technology over time – that, on the whole, we as a society benefit dramatically the better our technology gets. This viewpoint dismisses short-term problems – the unemployed workers who get automated out of their jobs or the under-resourced loan applicants ill-equipped to deal with exploitative financial algorithms – as a minor cost of progress. Recall the pinnacle scene in the film Other People’s Money, where Danny DeVito (memorably portraying leveraged-buyout artist Larry “the Liquidator” Garfield) discusses with shareholders his reasons for attempting to dissolve what he regards as an obsolete wire and cable company:

“You know, at one time, there must’ve been dozens of companies making buggy whips. And I’ll bet the last company around was the one that made the best goddamn buggy whip you ever saw. Now, how would you have liked to have been a stockholder in that company?”

True enough. But as a closing note of caution, consider the case of the cotton gin, helpfully referenced by MIT economics professor Daron Acemoglu and his colleague Simon Johnson in their recently published book Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity. Their work thoroughly investigates how technological progress has impacted societies throughout history. It is a cautionary retort to the techno-optimists who promote AI as a superhighway to greater human flourishing.

As is widely understood, the cotton gin was revolutionary technology when Eli Whitney patented it in 1794. Even the earliest versions of Whitney’s gin were a dramatic technological improvement over the painstaking manual process of separating cotton fibers from the seeds in cotton bolls, and the widespread use of the cotton gin could have been an unadulterated net benefit to society at the time.

But as Acemoglu and Johnson remind us, the cotton gin was overwhelmingly responsible for sustaining and expanding slavery in the American South for the six decades following Whitney’s patent. Slavery was arguably a dying institution towards the end of the 18th century – in addition to imposing unspeakable misery on millions of people, the slave-centered economies of the Southern states were inefficient, backward, and primed for collapse as constituted. The cotton gin was such a dramatic technological advance that it made barbarism increasingly profitable, deepening the rot at the heart of Southern society. And it further implicated Northerners in the moral evil of slavery, as the prosperity of New England’s textile mills and the lucrative export of clothing would have been impossible absent the proliferation of inexpensive raw cotton from the South.

All this incentivized the perpetuation of American slavery. Nine new slave states joined the country after the invention of the cotton gin. The output of raw cotton doubled every ten years between Whitney’s patent and the Civil War, and by 1850, the majority of the global production of raw cotton was grown in what would soon be the Confederacy. A disturbingly straight line can be drawn from the patent of the cotton gin to the Civil War, the failures of Reconstruction, the horrors of the Jim Crow South, and the racial inequities that haunt the country to this day.

Of course, the cotton gin itself is an inanimate object incapable of imposing moral evil. It took a sick society, corrupted to its core – the moneyed plantation owners, the Northern businessmen, the politicians, the religious institutions, the schools, and the poor white underclass collectively – to make the cotton gin a tool of evil in the American South.

Given such history, it is helpful to consider all kinds of technological progress through this lens. Professors Acemoglu and Johnson remind us that new technology is only as wonderful as what we decide to do with it. The rapid advances in AI are simply the next challenge in the fight for human prosperity and our collective happiness; let us resolve to put it to work for better purposes than high-interest fintech loans.

By David Langlieb

As Reinhold Niebuhr’s serenity prayer advises, it is wise to accept the things we cannot change. The rub is that what can’t change is often unclear. At the Philadelphia Accelerator Fund (PAF), we’ve spent many restless hours contemplating Niebuhr’s appeal concerning news coverage about hedge funds and other corporate, out-of-state landlords parading into Philadelphia, buying rental property, and driving up rents. This has been a simmering issue for decades, but in the current inflationary environment where too many dollars are chasing too few investment opportunities, the comparatively low costs of Philadelphia real estate and the regional undersupply of housing have amplified the problem.

This summer, a viral TikTok post drew attention to a 35-property portfolio of occupied, single-family homes in Cobbs Creek, offered for $7 million. The listing described the portfolio as a “capital appreciation opportunity” – language presumably tailored to attract an institutional investor. This kind of thing coming to a stable, minority-majority community like Cobbs Creek hits especially hard, reaffirming how deep the corporatization and financialization of the American economy can reach into city neighborhoods. What can be done about this? It feels fundamentally unacceptable, particularly in a city like Philadelphia, with a proud tradition of owner-occupied homes and local landlords.

Late last year, the Nowak Metro Finance Lab at Drexel University published Investor Home Purchases and the Rising Threat to Owners and Renters: Tales from Three Cities. The report by Bruce Katz, Emily Dowdall, Ira Goldstein, and Ben Preis compared investor acquisition trends in three cities – Jacksonville, Richmond, and Philadelphia – and revealed some jarring statistics. Namely, over the last 30 years, the percentage of the housing rental market owned by sole proprietors (meaning individual landlords) has declined from 77% to 41% nationally. This trend toward the investor acquisition of rental properties has heavily impacted Philadelphia. In 2020 and 2021, investor purchases were approximately 25% of all single-family home sales in the city.

Not every LLC is a large, faceless, non-local institutional investor, as sole proprietors may find it advantageous to form an LLC to own and operate one or two properties. But many of them are. And it’s not hard to intuitively understand that hedge funds and other corporate investors are often subpar landlords. With no particular connection to the city or its inhabitants, such property owners tend to maximize rents and minimize operating expenses. A local landlord may not be perfect, but with institutional investors from out of state, the long-term stability of the neighborhood is inevitably subordinated to short-term ROI.

 

The PAF Alternative

Katz and his co-authors correctly diagnose the problem and shed light on the key dynamic: cash is the main competitive advantage that corporate and institutional investors bring to real estate transactions. Most local developers and landlords – particularly Black- and Brown-led firms with owners who want to invest in their communities – do not have the personal liquidity or access to capital to make fast, credible offers on rental properties. Sellers understandably favor cash buyers, as the process of bank underwriting or securing financing from another source adds time and uncertainty to the deal. As hedge funds and corporate investors get increasingly aggressive with cash, it has become ever more difficult for small, local landlords operating in good faith to acquire real estate.

My hope is that PAF can play a meaningful role in leveling the playing field in the years ahead. We have made some headway already, as we have the benefit of a clear mission focused on assisting small developers, and we have tools in the toolkit to address the problem. As alluded to in an earlier blog, we turn around letters of interest and term sheets, bolstering the credibility of small, local buyers who need financing. Our most recent loan for a rental rehab project closed in seven weeks, from the first handshake to the final HUD-1. Further, by providing affordable interest rates to our borrowers – now around half the cost of ‘hard money’ lenders who are typically the primary alternative for small developers – we can make deals viable that otherwise might not work. Our credit analysis process is flexible, and we underwrite quickly. Most importantly, we mandate as a matter of policy that a majority of units on any PAF-financed project are deed-restricted for at least 15 years at an agreed-upon level of affordability. This deed restriction attracts the right kind of landlords willing to accommodate rent caps and sends a clear message about who we’re here to serve.

 

Looking Ahead – Products and Partnerships 

During my five years with New Jersey Community Capital (NJCC), the organization’s excellent lending team had considerable success utilizing what NJCC calls its “developer line of credit” loan product. This is the best financial product I have seen made available to small affordable housing developers by any Community Development Financial Institution (CDFI) in the region. Developers are underwritten for a sample project at the loan application stage and then typically re-underwritten every 24 months. If approved, they receive access to a flexible line of credit that can be used to make fast offers on properties – sometimes from private buyers, sometimes purchased out of foreclosure or tax sale – and term out a portion of the line after construction completion as a mini-perm sub-note for rental real estate. The developer line of credit also works well at financing affordable for-sale rehabs. The challenge for PAF is to find the kind of patient investor capital needed to create this kind of loan product. But as we look to grow the Accelerator Fund, strategically doubling down on speed and flexibility will be of paramount concern.

Financing is part of the answer, but collecting information is also critical when identifying opportunities and strategically deploying resources. This is why I am thrilled that Philadelphia is among the 11 pilot cities chosen for the recently announced partnership between Accelerator for America and Tolemi (a Boston-based technology development firm). This effort will utilize a data software tool designed to curate and synthesize essential property data for cities with an eye on housing. Much of this information is currently difficult to access and analyze – for example, recognizing shell LLCs with common owners or identifying vacant parcels primed for affordable housing development. It will be especially beneficial for a city like Philadelphia, where 12% of our land is vacant, and the need for deliberate, methodical land use collaboration between government, financing institutions, non-profits, and responsible local developers could not be more significant.

The challenges are undeniable. But despite the headwinds, a comprehensive, affordable housing development and preservation strategy for Philadelphia is collectively at our fingertips. Let us have the strength to change what we can.

By David Langlieb

Here’s a challenge I’d put some money behind: provide me with a compelling, substantive public interest-based reason—for why it takes 1,250 hours of training to become a licensed barber in the Commonwealth of Pennsylvania. Or why a Pennsylvania cosmetologist needs the same 1,250 hours of training or 2,000 apprenticeship hours? This is the current law, and the only way around it is ‘reciprocity,’ which means proving licensure from a different state with similar training requirements. New Jersey, for example, requires a mere 900 hours of barber training. Is hair styling really more than a quarter less difficult east of the Delaware River?

All snark aside, barbering and cosmetology are skilled professions and quality training undoubtedly helps create better barbers and cosmetologists. Further, to the extent that toxic chemicals are utilized in these fields, anyone working with such substances should be competent in best practices for handling them. But a sense of proportion is in order when a thousand-plus hours of training at an accredited program will cost prospective barbers and cosmetologists $15,000 – $25,000, particularly given that in a typical ten-month program, trainers only spend a fraction of the curriculum hours on skin diseases, chemical handling, bacteriology, and other matters that directly affect consumer safety.

Of course, we need licensing and a robust regulatory state where public interest exists. We can be foursquare behind stiff licensing requirements for heart surgeons and dentists without requiring new barbers and cosmetologists to pay tens of thousands of dollars for training programs. As a matter of simple common sense, a self-taught dentist poses a radically different consumer risk than a self-taught barber.

There are reasons for these licensure requirements, but reducing public risk is low on the list. They exist first to justify the licensing bureaucracy and the employees who depend on it, second to preserve the interests of the training schools, and third to protect the incumbent licensed professionals who had to go through the process themselves. We find incumbency bias like this throughout our system, as existing professionals are (understandably) unenthusiastic about new competition from aspiring barbers and cosmetologists not facing the same barriers to entry. Incumbency bias sometimes makes good policy sense but it can also create unfortunate outcomes.

 

The Costs of Overreach

Perhaps this is making mountains out of molehills. How much does it really matter if Pennsylvania barbers are over-trained?

To me, there are two very particular and critical reasons. For starters, haircutting and cosmetology can be excellent employment and entrepreneurial opportunities. Unnecessary licensing and red tape drive up the cost of entering these professions and ends up being prohibitive in many cases, particularly for younger individuals without the resources to pursue expensive degrees and certifications. A medical doctor may need to borrow hundreds of thousands of dollars to complete medical school, but the amortized lifetime earnings of that doctor are typically more than sufficient to repay the loans. It is much more challenging to underwrite a small business loan to a prospective hair or nail salon owner, given how substantial the upfront costs of licensure (on top of equipment, leasehold improvements, and startup working capital) are relative to prospective earnings.

People come to professions like haircutting and cosmetology for many reasons. Some might have a special passion for the work, some may simply lack the resources for college. Others may find that their undergraduate education failed to provide opportunities for a living wage career and enter these professions already burdened with student loan debt.

Things are worse still for citizens returning to society after incarceration. It wasn’t until Governor Wolf signed Act 53 into law in 2020 that prior criminal convictions unrelated to an applicant’s desired profession were also a barrier to getting Pennsylvania occupational licensure. Folks attempting to reenter society already face significant challenges securing employment, and exclusion from licensing is yet another obstacle. Act 53 is, in theory, a good first step towards occupational licensing reform. But, as argued in an April 2023 report published by Community Legal Services, the implementation of Act 53 has been riddled with difficulties. The most significant issue involves the Bureau’s overly broad interpretation of offenses “directly related” to the relevant licensed occupations. Such offenses continue to throw a wrench into licensure for returning citizens.

These are practical problems. But a broader principle is at stake for those like myself who support a robust public sector capable of making a positive difference in people’s lives. I’m inclined to recognize problems the free market cannot solve and favor strong government involvement to alleviate them. The liberalism that gave us Social Security and Medicare, FDA-inspected food, fair housing, civil rights safeguards, the Environmental Protection Agency, and much more is a precious domestic asset and critical to our survival as a multi-racial democracy.

But public support for government intervention in a democratic society is fluid and needs constant reaffirmation. The multi-generational project of libertarians and conservatives looking to core out and weaken the essential components of the modern progressive state draws its oxygen from foolish public policy and maladministration. A state government that prohibits a formerly incarcerated citizen from cutting hair has a tough case to make when it asks for more authority, regardless of how justifiable the prospective intervention may be. It is crucial for those of us who believe in the progressive state to care about how the government functions in practice and to improve it where possible. Government involvement in any area is not a virtue in and of itself. A popularly elected government needs to strike a balance between ensuring quality public services and jettisoning frivolous or counterproductive interventions.

 

Matters of Federalism

There is a kind of paradox at work here: while the broadest interventions exist on the federal level, citizens interact most often with their government on the state and local levels. And in a complex modern society like ours, who is intervening isn’t always straightforward. The average citizen has a limited understanding of how the EPA regulates clean water but an excellent understanding of whether or not the garbage gets picked up. Nonetheless, both are critical.

Philadelphia—a liberal city in a swing state and an ideologically diverse country—has the added difficulty of an acute need for robust local government without the resources of wealthier counties. And within this regulatory latticework, an alphabet soup of federal, state, and local agencies deliver different services, some more competently than others. We can forgive citizens for lassoing all of this into “interactions with the government” when they think about how the public sector functions. This is all the more reason the government needs to work effectively everywhere to sustain its popularity anywhere.

Occupational licensing reform is a minor personal obsession, as I spent years in CDFI small business lending and grew frustrated by how these kinds of regulations hamper entrepreneurship. But there is a more significant principle at play, which is that the breadth and quality of government involvement matters the more localized it gets. It matters how responsive municipal government is to the needs of both tenants and property owners. It matters how quickly local government agencies issue permits and approvals as well as the thoroughness of application reviews. It matters if people feel safe on SEPTA and walking our commercial corridors. It matters if residents broadly find the government responsive to their needs.

Much of our system is in good shape. Within the Philadelphia Accelerator Fund’s world of financing affordable housing, we see the City as an essential partner, aligned with our goals and responsive to the same fundamental mission. The work by PHDC and other agencies makes it possible for the Fund to execute on expanding affordable housing and enhancing opportunities for minority-owned development firms. PHDC’s Minority Developer Program (MDP) is just one such recent effort, providing direct technical assistance that helps create a pipeline for Accelerator Fund loans and, in turn, supports affordable housing development by MBE firms.

There are many examples in Philadelphia of government at all levels directing resources in a well-considered and carefully administered way. And tens of thousands of public employees are doing excellent work under difficult circumstances. Given the challenges of governing a complex modern society, it is more crucial than ever that our public sector get as much right as it can, focusing its energies on compelling public interests. A lighter touch can be part of this effort, mainly where the government imposes rather than subsidizes, and particularly at the state and local level.

By David Langlieb

In 1947, renowned Philadelphia planner Ed Bacon presented a vision for the city’s future at the Better Philadelphia Exhibition, an innovative effort to engage the public in the city’s postwar development. Bacon organized the exhibition with reform-minded architects and planners to cultivate public support for modernizing Philadelphia’s built environment. Hosted by Gimbels Department Store on the southwest corner of 8th and Market Street, the Better Philadelphia Exhibition’s central display was a massive diorama of the city as it was and as it could be.

Bacon and his contemporaries offered several excellent ideas, many of which would come to fruition in the coming decades. The creation of Independence Mall and the elimination of the above-ground Pennsylvania Railroad viaduct were just a couple successes. By the mid-1980s, the city had creatively leveraged state and federal funding to deliver on several key initiatives, and we’re a better city for it.

But then there was the Crosstown Expressway. As originally conceived, the Expressway was to run west to east from river to river, effectively replacing South Street with an interstate highway and – at least in theory – reducing Center City traffic by diverting it around downtown. In doing so, reasoned supporters, the Expressway would help the city adjust to an increasingly automobile-centric country and preserve the manageable scale of Philadelphia’s urban core.

As students of postwar urban renewal efforts know well, the push to build interstates through American cities was a nationwide phenomenon. But not every city came out the same way. Philadelphia ended up completing three of the four major interstates intended to ring the downtown core—the Schuylkill Expressway (I-76) in the west, the Delaware Expressway (I-95) in the east, and the Vine Street Expressway (I-676) along the north. There was community opposition to all four, which resulted in certain modifications, but only with the Crosstown Expressway was the opposition completely successful.

We have our share of problems in Philadelphia, but the Crosstown Expressway, thankfully, isn’t one of them. And it’s hard to imagine anyone proposing constructing the Crosstown Expressway today, which is telling. As the members of the Citizens’ Committee to Preserve and Develop the Crosstown Community (CCPDCC) maintained at the time, the intrusion of the Expressway would have stifled the quality of life in neighborhoods like Queen Village and Hawthorne. Opponents also argued that the plan would further cement the era’s residential segregation, with the growing Black population south of South Street cut off from downtown. Intentional or not, that’s likely what would have happened.

 

Alternative Histories

I recently visited St. Louis, which is in many ways a wonderful town. I stayed at a beautiful Italianate-style hotel in the city’s Central West End neighborhood, abutting the lovingly maintained and picturesque Forest Park (home to the 1904 World’s Fair). I ate several excellent meals and saw some terrific live music. Unfortunately, the other thing I saw in St. Louis was a kind of dystopian alternate history of Philadelphia in which the worst instincts of postwar urban highway planning achieved their Platonic ideal.

St. Louis is a living reminder of how much worse things could have been. It approximates what our city would have looked like had the Crosstown Expressway come to fruition, entrenching racial segregation and compounding the innate difficulties of maintaining city neighborhoods. It’s even worse than that really, because municipal St. Louis was less than half the size of Philadelphia even at the two cities’ respective population peaks. To approximate the damage on a pro rata basis, you’d need to imagine both a Crosstown Expressway and an additional interstate replacing, say, Wharton or Tasker Street and perhaps a spur off I-95 to replace part of Cecil B. Moore Avenue, depositing motorists at Temple.

In St. Louis, I-64 bisects the middle of the city, dividing the mostly Black north side from the rest of town. Less than three-quarters of a mile south of the I-64 interstate, I-44 chops up a half dozen otherwise viable neighborhoods—including the city’s more racially integrated communities—and feeds into yet another interstate (I-55) and a spaghetti bowl of interchanges and off-ramps that divides the easternmost of these communities from St. Louis’s small downtown. As if that weren’t enough, I-44 heads north, dismembering downtown from the riverfront and branching inward towards the city’s baseball stadium. The riverfront park, home to the famous Gateway Arch, was constructed after eminent domain destroyed yet another neighborhood.

It’s not hard to understand what is happening here—St. Louis, in its current form, is a city that exists for the intermittent enjoyment of suburbanites who drive in for recreation, maybe eat dinner, and then leave. The interstates take them where they want to go while city residents navigate a built environment that wasn’t built with them in mind.

During my recent visit, I walked around St. Louis for several hours across four sunny summer days and barely saw another pedestrian. Even the central business district was nearly pedestrian free during work hours. There was a time when county residents may have also commuted downtown to work, but given the trajectory of the city’s economy, St. Louis’s few office buildings are now sparsely tenanted. The city’s main private employers—the hospital system and the universities—mostly exist on the periphery of the municipal boundaries, and the city’s recent development successes have occurred around these economic anchors where they are mostly unmolested by interstates.

Unlike Philadelphia, where our city and county boundaries match identically, municipal St. Louis is a small wedge of much larger St. Louis County, creating problems with its tax base. But even more critically, this has had a devastating impact on regional governance and planning decisions.

Political power follows votes, and between 1950 and 2020, St. Louis’s population declined from 856,000 to 293,000—a 66% drop. A population decrease like this far exceeds the typical population drop most American cities experienced after post-WWII suburbanization. If Philadelphia’s demographic decline had matched St. Louis’s proportionally over those 70 years, our population would have gone from over 2,000,000 to around 700,000—less than half the actual number of Philadelphia residents currently in the city and just a hair above the population of El Paso. Simply put, St. Louis diluted its essential urban character, and two out of three residents moved to the suburbs. The husk of the city that remains has a great deal to recommend. Still, it lacks the fundamental quality of life elements that are unique and appealing about urban living – pedestrians, street life, active commercial corridors, and dynamic neighborhoods. Modern St. Louis is a ‘city’ primarily in the sense that a teardrop-shaped boundary was drawn in eastern Missouri and declared a city.

We are not urban planners at the Philadelphia Accelerator Fund and claim no special insights. But we are nevertheless conscious of how building affordable housing—like all construction—is a kind of planning decision. Our essential goals are to build housing that is a) as affordable as possible to the homeowner or tenant, b) economically viable, and c) designed on a scale that fits the existing built environment. Achieving this trifecta is often easier said than done, but we attempt to finance development work with these principles in mind. Some of our initial efforts have included rehabilitating existing properties, and we are always looking to do more. Rehabs preserve the existing scale of the neighborhood, as does by-right new construction.

St. Louis does not want for rehabilitation opportunities, as the many attractive but vacant residential structures scattered throughout the urban landscape attest. But if redeveloping these properties means future residents will live in the shadows of an interstate without access to quality retail, services, and a walkable community, it is no surprise why those opportunities have not turned into reality.

By David Langlieb

At the Philadelphia Accelerator Fund, part of our mission is to encourage homeownership by financing affordable for-sale housing. The American tradition, at least in an aspirational sense, is to promote property ownership as a way for the citizenry to build wealth and enhance individual liberty. As theorized by Enlightenment philosophers like John Locke, who inspired the Founding Fathers, land ownership is a natural right and emerges organically as the fruit of an individual’s labor. While a great deal has changed since the founding, property ownership remains a meaningful step towards greater personal liberty because safe shelter is among the most basic human needs. Subordinating that need to a landlord’s interests may be economically necessary but is, as a general matter, unpreferable.

To my mind, the many historic failures of America to live up to the aspirations of its first principles – most recently, the country’s loathsome record of racial discrimination in mortgage lending – underscore how important rectifying these injustices is to preserving the American experiment. A land where all citizens can own property – to own the fruits of their labor in the Lockean sense – is a worthy endeavor.

I was reminded of how deeply these issues are rooted in the country’s history just last week when the Supreme Court handed down a stinging rebuke to a county government seeking to profit off the seizure of tax-delinquent real estate. While there is a great deal of shameful American history regarding housing, the prohibition on takings without due compensation guaranteed by the Fifth Amendment is an essential legacy of the early American era, and we are fortunate to have it.

Two months ago, the Court heard arguments on a strange little case called Tyler v. Hennepin County. The facts were these: Geraldine Tyler, an older woman who owned a condominium in Minneapolis, Minnesota, moved out of the condominium into an age-restricted senior community. Living on a low fixed income, she failed to pay taxes on the condominium for several years. Eventually, she accrued a property tax debt totaling $15,000 due to the county, including interest and penalties. After five years of attempts to collect on the tax debt, the county foreclosed on the property and ultimately sold it at auction. The sale yielded the county $40,000 – well over the outstanding tax debt. So, Ms. Tyler received the surplus profit on the deal, right?

Amazingly, no – the county kept not just the $15,000 it was owed, but also the $25,000 in surplus equity. It was distressing to learn that this is evidently how Minnesota’s county governments and other governmental entities throughout the country have been handling windfall profits off tax foreclosures for years. Ms. Tyler sued Hennepin County, and after a series of appeals, the case came before the Court this spring.

Listening to the oral argument during a slow jog around Fairmont Park the other day, I was struck by the contrast between tax foreclosures in Hennepin County and how things work with lenders who foreclose due to nonpayment on a mortgage. Banks and non-profit lenders who foreclose on properties are legally required to return windfall profits from the sale to the former owner. And quite rightly so. At the heart of the question before the Court was whether or not the government has more rights to equity in private property than, say, Wells Fargo or JP Morgan Chase.

To be sure, windfall profits from foreclosure auctions are relatively rare – a property owner who is delinquent on taxes or mortgage payments but who has significant equity in the home is likely (and well-advised) to sell the property themselves if they cannot refinance or negotiate a repayment plan with the county. But these windfall profits happen, particularly in a robust real estate market like the one we are currently experiencing.

In addition to fundamental fairness, the question before the Court turned on interpreting the takings clause of the Fifth Amendment, which ensures that “private property [shall not] be taken for public use, without just compensation.” There exists a public purpose in taking tax delinquent property, to be sure – but how on earth could settling that tax debt with a $25,000 surplus profit to the government be “just compensation”?

During oral argument before the Court, counsel Neal Katyal – advocating for Hennepin County – was asked pointedly why mortgage lenders are required to return windfall profits from foreclosures while governments are not. He aroused laughter and ridicule from the justices with the following response:

“With this situation, the government is stuck holding the bag at the end of the day. And that’s why you have a different tradition. It’s a tradition that goes back to even before the republic, to the Statute of Gloucester in 1278…”

It is common for advocates arguing constitutional questions before the Supreme Court to cite English common law since the foundations of American law are rooted in these principles and historical context can be helpful. But the relevant portion of the Statute of Gloucester cited by Katyal was written to enshrine feudalism. The brief from Hennepin County cited the Statute as a means to empower lords to recover land on which occupants (i.e. vassals or serfs) failed to meet their crop quotas (or other obligations due to the lord) for two years.

Needless to say, glorifying feudalism is not a good look. If American constitutionalism and Lockean property rights mean anything, they mean we’ve left serfdom and the laws codifying its structures in the dustbin of history where they belong.

Of course, absolutist libertarians assert that property taxes are themselves a form of feudalism. This goes way too far in the other direction, as we’re a modern democratic society with needs like public schools. Property taxes are the price we pay for this society, and it’s an excellent bargain. But for the government to do what Hennepin County did to Ms. Tyler – to seize the equity in her property in excess of what she owed under this bargain – is antithetical to what one hopes is a fundamental American value.

On May 25th, the Court issued a unanimous opinion written by Chief Justice John Roberts in favor of Ms. Tyler. The opinion was announced just a month after the oral argument, suggesting this wasn’t a terribly difficult case for the Court. It was a relief to see the justices recognize that the American system must not accommodate modern feudalism, with county government as lord.