Passage of Housing Opportunity Fund Legislation

 

In late December, Pittsburgh’s City Council passed legislation creating the Housing Opportunity Fund (HOF), a special fund overseen by a governing board that will create and preserve affordable housing in the city. However, one major component was missing from the legislation – how it will be funded. The Affordable Housing Task Force, first convened by Mayor Peduto in 2016, recommended a funding goal of $10 million per year. That money is predicted to create and/or save around 700 units of affordable housing per year given current market conditions.  The most stable form of funding would  be from the City budget, but that option is not being considered. Instead, the HOF’s funding will likely have to rely on at least two, if not several, disparate sources. The primary concern among PCRG and our members is how regressive any one funding source will be on low and moderate income earners. The two most common forms of funding affordable housing trust funds like the HOF are real estate transfer taxes (RETT) and property taxes. However, Pittsburgh is somewhat unique in that both our RETT and our property taxes get diverted to several different areas. In the case of the RETT, which is currently at 4% of the sales price, 1% goes to the state, 2% to the city, and 1% to the school district. The suggested increase to the RETT is 1%, meaning that a home selling for $200,000 in East Liberty would owe $10,000 in RETT-related closing costs. The city’s property tax is similarly divided up between the city, county, the Pittsburgh Public Schools, and the Carnegie Library of Pittsburgh. Choosing just one of these to meet the yearly funding goal will concentrate the burden and take a disproportionate amount of income from those least able to contribute. Another option on the table is the creation of a developer impact fee, meaning a developer must set aside a certain number of affordable units (typically pegged to a certain percentage of Area Median Income) or pay a fee. The calibration of that fee is crucial – set too low and it becomes another cost of doing business and does not adequately fund the HOF; set too high and it could result in political upset and a cooling off of the housing development market. While a RETT is common source in other cities and states for funding affordable housing, their rates are universally lower than Pittsburgh’s (or Pennsylvania’s for that matter). More to the point, their lower RETT is typically dedicated to fund one thing, be it affordable housing, nature conservation, etc. Pittsburgh’s RETT is already being split three ways, and soon to be four if the HOF is included. Both the high amount and degree to which our fund is split up makes it anomalous. Much like the RETT, property taxes are also regressive. Despite this, Pittsburgh’s population is large enough that a very small increase in the property tax – even just a 0.25 mill increase – could make a large dent in the $10 million needed for funding the HOF. Impact fees should absolutely be considered as part of the HOF’s funding strategy, but we should leave behind the idea that the fee is given in-lieu of the creation of affordable units. When an impact fee is an option, it seems that developers almost always select it. This is not to say that below-market units should be discouraged, but we should focus more on getting the impact fee right. The Philadelphia Coalition for Affordable Communities may be a resource for Pittsburgh’s own efforts. Pittsburgh’s housing market is faring well on the whole, but is highly uneven from neighborhood to neighborhood. Therefore, the RETT's impact on neighborhood markets will also be uneven and could cool the overall market slightly. While that might be a benefit in rapidly gentrifying neighborhoods like Lawrenceville and East Liberty, the cooler market areas may be resistant to a devaluation of their homes due to higher taxes. It is also unclear whether a 1% increase in the RETT will be stable and large enough to accomplish the goals of a future housing trust fund. There is also the less quantifiable impression such a high tax gives people looking to purchase property in Pittsburgh, and could further incentivize people to locate outside city bounds. PCRG and its members want to make homeownership and its attendant wealth generation available and affordable to all Pittsburghers. We believe that relying solely on a 1% increase to the RETT to fund the HOF puts too high a burden on LMI buyers and sellers. It also locks the HOF into only one source – a volatile one – and does not build resiliency into the HOF’s ability to achieve its goals. The cost of the HOF could be successfully distributed across current homeowners, businesses, developers, and home buyers and sellers if we can accept the complication of a multi-stream funding structure.