10C — June 22 - July 12, 2018 — Mid-Year Review — M id A tlantic

Real Estate Journal

L and U se

By Neil Stein, Kaplin | Stewart A Tale of Two Cities Solving the Affordable Housing Problem


condominiums dominate the market. Why? Canada care- fully manipulates housing affordability, principally by eliminating certain tax advan- tages which make apartments a more expensive investment. This system creates a greater supply of affordable housing and an increase in homeowner- ship opportunities at all income levels. Is that really free mar- ket capitalism at work? The feverish pace of luxury apartment construction in this country is a product of greater financial reward and less risk in a free market setting. Un-

fortunately, new luxury apart- ments come with higher rents. For the less affluent renter, too large a share of their income is spent on housing costs, lead- ing to difficulty in paying for other necessities such as food and medical care. For those who cannot afford rent or the costs of owning a new home, the only option it to remain in older, less desirable housing. The same problem has arisen in suburban communities, where land prices are higher, zoning regulations are more restrictive and rental housing still carries a stigma.

The remedy? Some cities, including Philadelphia, have already enacted or are con- sidering a tax on the new construction of luxury hous- ing. New York has generated approximately $1 billion from luxury development, which has been used to create affordable housing in Harlem and the South Bronx. This is a poorly conceived solution with many questions. What is meant by luxury? What happens to existing tax abatements or incentives? Are wage taxes reduced? Would enough revenue be generated

to make an appreciable differ- ence? Importantly, the solution may be worse than the prob- lem. Separate neighborhoods of “haves” and “have-nots” may be created, with better facili- ties and services located in the more affluent neighborhoods. While the construction tax is intended to preserve affordabil- ity, the benefits of renovating existing neighborhoods may prove too costly. Instead, counterintuitively, encourage more building and allow market forces to address the problem. If urban and suburban areas are becoming rapidly unaffordable, build more apartments but without displacing low-income fami- lies. The government should furnish density bonuses with a required affordable housing component. Provide greater economic incentives for adap- tive reuse projects and the development of under-utilized land. The cumulative effect of all that new supply, with decreasing demand, will hold down rents across neighbor- hoods and cities, making hous- ing generally more affordable. Supply is an undeniably im- portant component. While it may be politically expedient to restrict the height of new build- ings, the resulting decrease in density will drive down supply, driving up prices and making certain urban areas less afford- able. There’s the tradeoff. Further, the entitlement process must be cheaper and simpler, financial and tax in- centives must remain in place and the industry and elected officials need to do more to em- phasize to opponents that there is little empirical evidence to support the perception that apartments increase crime, traffic, and the cost of govern- ment services, or that existing single-family homes decline in value. Otherwise, the bubble may burst, and those in need of affordable housing will see no improvement. Neil Stein is a principal and member of the Land Use, Zoning &Development group. Stein has over 25 years of experience repre- senting real estate owners, developers, lenders and builders in complex land use, zoning, environment and corporate matters, as well as design professionals in contracting and business structuring. 

o Charles Dickens here, just the opinions of a land use lawyer

with opinions about how best to solve an a f f o r d - ab l e hous - i ng s h o r t - age. Start by c omp a r i ng Seattle and Vancouver,

Neil Stein

close neighbors in different countries. Most of the newly constructed housing in Se- attle is of the “luxury” rental type. In Vancouver, for-sale

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Contact: NEIL A. STEIN • 610-941-2469 • nstein@kaplaw.com Visit our Blogs: pennsylvaniaconstructionlawyer.com • philadelphiarealestatelaw.com Cherry Hill, NJ 856-675-1550 • Blue Bell, PA 610-260-6000 • Philadelphia, PA 215-567-3120 • Kaplaw.com

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