As cities across the country scramble to manage the housing affordability crisis, Philadelphia's lawmakers landed on an unusual approach: they put bonds at the center of their plan.
The Housing Opportunities Made Easy plan will be funded in part by $800 million of municipal bonds. On Tuesday, the city will issue the first $394.7 million of HOME bonds through the Philadelphia Redevelopment Authority.
The bonds will be repaid from Philadelphia's general fund; the City Council has passed an ordinance committing to appropriate the necessary funds, and the city has an "unconditional and absolute obligation to make the debt service payments," according to City Treasurer Jacqueline Dunn.
The bonds are rated A-plus with a stable outlook by Fitch Ratings, A1 with a positive outlook by Moody's Ratings and A-plus with a stable outlook by S&P Global Ratings, in line with Philadelphia's issuer and general obligation ratings.
For rating purposes, the bonds are essentially GO bonds, S&P analyst Bobby Otter said; these bonds will have the same "fungibility of resources" as GOs, he said.
The deal's structure is unusual, Moody's analyst Dan Seymour said, but other cities also choose to use conduits for a variety of reasons. Philadelphia once used conduits including the Redevelopment Authority to issue debt when it was at its debt limit, but now the city is $15.6 billion below its $18.3 billion statutory cap.
Dunn said the city chose to issue bonds through the Redevelopment Authority because of its housing-focused mission, and because issuing through a conduit gave the city more flexibility for the deal's structure.
"Under Pennsylvania state law, GO investments have some more constraints," Dunn said. "We … have more structuring flexibility when issuing through an authority. We can be responsive to what the market is seeking, to the extent that benefits the city."
The first series, $317 million of federally taxable Series A bonds, will feature maturities from 2026 to 2027, 2029 to 2041 and 2044 to 2045. The second series, $77.7 million of tax-exempt Series B, is set to mature from 2042 to 2044.
The city opted not to use a social designation for the deal, but the proceeds of the bonds are front and center in its offering documents and marketing materials. Dunn said she hopes that stating the purpose of the deal will help with its performance.
"We do describe the projects and the nature of the investments, and so I think we're hoping to attract a broad base of investors and funds," Dunn said. "I think really describing the nature of the investments is the most important piece there."
RBC Capital Markets and Siebert Williams Shank are the lead managers for the deal, with Blaylock Van and Raymond James as co-managers. PFM and Phoenix Capital Partners are co-municipal advisors and Cozen O'Conner and Ahmad Zafarese are co-counsel.
The HOME plan, spearheaded
Most cities try to encourage affordable housing with federal funds, Craig said. They also use policies like zoning laws to encourage private developers to build more units; often those units are for higher-income residents, but the cities hope they will help older housing remain affordable for middle- and low-income residents.
The biggest source of funds for affordable housing is the federal low-income housing tax credit, Craig said, which goes to private developers who build new housing and rent it at affordable rates for 15 or 30 years. Once that tax credit runs out, Craig said, property owners raise the rent, so it's no longer affordable.
Philadelphia's HOME program comes as the federal government is decreasing its funds for affordable housing. Municipal bonds "have taken on an outsized role in sustainable housing development," according to
Bonds will make up $800 million of the $2 billion plan.
The HOME program is "a remarkable intervention," Craig said. Most cities haven't issued debt on behalf of their housing programs. The city's choice to use its own debt will give it more control over the new housing it incentivizes.
"This decision to issue debt in order to finance the construction of affordable housing on its own is a really novel and direct approach to solving this problem," Craig said, "which is likely to be more effective in generating closer to the number of units that they really need to meet their demand."
Big cities "are almost universally struggling with affordability challenges," Seymour said, and many cities are trying to address housing affordability.
"But I think from a credit standpoint, most of the cities I rate are not taking on significant amounts of debt to directly fund affordable housing," Seymour said. "Philadelphia is."
Philadelphia's housing market is unique in some other ways. More than half of Philadelphians own their homes, and nearly 40% of the city's housing was built in 1939 or earlier.
In addition to building new housing, the HOME plan includes grants to address safety concerns in existing affordable housing units. The Redevelopment Authority and the Philadelphia Housing Development Corporation will enact much of the plan, according to the offering statement for the deal.
Dunn hopes the bonds will benefit from Philadelphia's fiscal momentum. The city ended fiscal 2025 with the highest reserves in its history, she said.
The city is grappling with some economic problems, along with a
"The city's unemployment is higher than the national rate and household income is well below the median of Fitch's U.S. local government rating portfolio," Fitch's analysts wrote in its rating report. It's also more reliant on income and sales tax revenue than most cities, Otter noted, which makes it more sensitive to economic downturns.
But
"For a long time, Philadelphia was a little bit of a laggard financially," Seymour said. "There were times when its reserve position was quite low, and over the past several years, there's been a clear improvement in the financial position. … Right now, the city is clearly showing that it's capable of maintaining a sound fiscal position in the current economic environment."
The city has low leverage, Seymour said, partly because it's been ahead of the curve on pension funding.
"They were earlier than almost all their peers on recognizing the need to increase contributions," Seymour said. "And they are out-contributing most of their peers."
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