The City of Pittsburgh annually invests $10 million in affordable housing, but Mayor Ed Gainey has long promised to do more. His administration will soon embark on an ambitious plan to raise millions of dollars, said Jake Pawlak, deputy mayor and the director of the city’s Office of Management and Budget.
Over the next six years, the goal is to make enough investments that “we've got the crisis of affordable housing, not resolved, but in hand,” Pawlak said.
The key to the new plan is buried on page 30 of the 2023 operating budget: an annual $2.5 million “transfer for housing issuance.” That allocation will allow the city and the Urban Redevelopment Authority to issue a bond whose proceeds will be used to make significant investments in affordable housing in the near term, and pay it back over the next 30 years.
Because the bond has yet to be released, it’s not clear how much money the city will be able to raise, Pawlak said. But he characterized the likely return as “tens of millions of dollars.” He added that the administration intends to issue a second bond in three years to raise a similar amount.
The city’s current investment in affordable housing “while critical, is not fast enough to catch up with the scale of the problem,” Pawlak said.
The coronavirus pandemic highlighted and exacerbated the need for affordable housing, and rising inflation has further taxed peoples’ ability to make rent. But the problem has been decades in the making. A 2016 report commissioned by former Mayor Bill Peduto found that Pittsburgh needed some 17,000 more units of affordable housing, a number which experts and advocates say has only continued to grow over time.
The finding helped spur creation of the Housing Opportunity Fund, which City Council agreed to provide with an annual budget of $10 million. However, it took until December 2017 to actually fund the HOF with an increase to the realty transfer tax.
It was a “generational investment,” Pawlak said, but it’s clear more money is needed. (Advocates, city councilors, and HOF advisory committee members have said the same.) Referring to the city’s shortage of affordable housing units, Pawlak said, “I can tell you our goal is to eliminate that deficit.”
It’s not clear how the new money will be directed: Pawlak said the mayor’s office and URA staff are currently focused on the financial particulars of going out to the bond market. However, he said the city is simultaneously working to create a spending plan. While some of the money could flow through existing URA and HOF programs, he said they may also create new programs. Pawlak noted the new infusion of money could help “take some of the pressure” off the HOF, where applications for funding repeatedly outstrip the available money. He added there are some things the HOF does that borrowed money could not, such as providing direct legal assistance to people, or helping to put together a down payment.
Because so much remains in process, Pawlak could not get into specifics about how or where the money could be spent. However, he noted a major area of need is the preservation of housing. Many affordable units carry restrictions that require them to remain affordable for a certain period of years — often 25, 30, or 40. When that term is up, however, the units revert to the private market and the owner can increase the rent accordingly.
“That’s a big contributor to how the deficit [of units] grows,” said Pawlak. Preventing that from happening is “one tool in our toolbox.”
This is not the first time city officials have sought to bolster affordable housing investments with a bond. Since 2017 city councilors Daniel Lavelle, who is also a board member of the URA, and Ricky Burgess have repeatedly floated the idea. Initially, they proposed using the HOF’s $10 million allocation to pay the debt service. But the fund didn’t have the track record to prove that it could use all the money a bond could raise. Later, there were concerns that using just part of the HOF’s budget could cannibalize its programs. In addition, many worried the increased realty transfer tax wouldn't generate enough money to pay the annual $10 million the city had committed. Some suspected the tax hike might even cool the city’s housing market.
Quite the opposite has happened, Pawlak said. “Every year the revenue we generate from that tax steadily increases,” even though the rate has changed over time, from 4.0 to 4.5 percent in 2018, and then to 5.0 percent in 2020.
With five years of data on hand, the city can safely say that the tax will generate $10 million each year for the HOF, and an additional $2.5 million to pay down the new bond. Pawlak said officials estimate that when the second bond is floated three years from now, they can set aside $5 million to pay that down.
An increased focus on, and investment in, housing was one of Gainey’s signature pledges during his 2021 mayoral campaign. Pawlak said the administration knows it can’t completely change the underlying dynamics of the housing market.
“But we can respond to them in a way that doesn't disadvantage the folks who are most at risk and create a situation where they can't be Pittsburghers anymore,” he said. “They're our neighbors and we'd like to keep them.”
