Philadelphia is often called “The City of Neighborhoods,” an ode to its diverse housing stock and a high rate of home ownership.

More than 52 percent of homes in the city are owner-occupied, 2017 data from the U.S. Census Bureau show, and the city tends to outperform the national average when it comes to minority home ownership. Nearly two-thirds of Philadelphia homes, according to some estimates, are classified as rowhouses. And more than 80 percent of the city’s housing supply was built before 1970.

In other words, Philadelphia’s housing stock isn’t just historic — it’s critical to neighborhood stability and fabric.

One big problem, though: Keeping that housing up-to-snuff can be onerous. Especially if you are a low- or moderate-income homeowner.

Aging rowhouses pictured along the 3100 block of Pennock Street in North Philadelphia's Swampoodle neighborhood. A significant portion of Philadelphia's housing stock is decades old.
Tim Tai
Aging rowhouses pictured along the 3100 block of Pennock Street in North Philadelphia's Swampoodle neighborhood. A significant portion of Philadelphia's housing stock is decades old.

According to a study released this month by the Federal Reserve Bank of Philadelphia, homeowners from across the region who are low- to moderate-income, female, or a minority tend to have more trouble getting approved for home-improvement loans from traditional financial institutions, such as banks. The problem has been most severe, researchers found, in the Philadelphia metro division, where nearly 75 percent of low- or moderate-income homeowners who sought home improvement loans were denied between 2015 and 2017.

The Philadelphia Fed defines low-to-moderate income as any person who makes less than 80 percent of median family income, or $48,950 in Philadelphia. The study focused on the Fed’s “Third District," which includes swaths of Pennsylvania, South Jersey, and Delaware. It revealed that the Philadelphia metro division, which includes Philadelphia and Delaware Counties, tended to have the highest denial rates during the period of 2015 to 2017.

The 74.6 percent denial rate in Philadelphia is more than 20 percentage points higher than the Fed’s entire Third District, where 53.5 percent of low- or moderate-income applicants were denied. Philadelphia’s denial rate is also much higher than that of its surrounding Montgomery-Bucks-Chester County metro area, where 42.8 percent of low- to moderate-income homeowners were denied for an improvement loan when they applied.

The revelation by the Fed — one that came from an analysis of public Home Mortgage Disclosure Act data — underscores what many housing advocates say is a growing problem in Philadelphia: The city’s homes are falling apart faster than their owners can repair them. According to the Healthy Rowhouse Project, a local advocacy group dedicated to improving rowhouse conditions, 235,000 homes in Philadelphia have leaks, 90,000 have cracks in the walls or floors, and 77,000 have inadequate heating. Meanwhile, the city continues to suffer from a 26 percent poverty rate, creating a problematic combination when it comes to fighting real estate blight.

A blighted rowhouse on the 2300 block of North 27th Street in Philadelphia's Strawberry Mansion neighborhood. Low- and moderate-income homeowners tend to put off necessary repairs when they can't afford to pay for them.
TIM TAI / Staff Photographer
A blighted rowhouse on the 2300 block of North 27th Street in Philadelphia's Strawberry Mansion neighborhood. Low- and moderate-income homeowners tend to put off necessary repairs when they can't afford to pay for them.

The problem in Philadelphia has worsened amid an unprecedented real estate renaissance, which has attracted investors and developers to build higher-end rowhouses from the ground up. Some housing advocates have urged the real estate community to focus instead on repairing the housing stock that Philadelphia already has. The Healthy Rowhouse Project, for example, estimates that more than half of all rowhouses could be fixed for $10,000 or less.

The Fed study offers some clues about the kinds of funds Philadelphia and Delaware County homeowners are seeking for repairs — and how they have attempted to pay for them before or after they are denied. In the Philadelphia division, for example, the median loan sought by low- to moderate-income homeowners was just $10,000, exactly $5,000 less than the median amount for the entire Third District.

Still, denial rates remain high because the homeowners applying for the small loans tend to be riskier borrowers, said Eileen Divringi, a community development research associate at the Philadelphia Fed and one of the report’s authors.

“Applicants who seek these smaller loans tend to be lower-income and have worse credit profiles,” Divringi said in an interview. Lenders "actually make a lot less money on the smaller loans. So sometimes banks are more reluctant to make these smaller loans because they are less profitable.”

As a result, the study found, homeowners often turn to cash and credit cards to fund repairs — the latter of which tend to carry higher interest rates than home improvement loans.

Frankford resident Christine Soder has lived in her rowhouse for years, but due to her low income put off necessary repairs. Her granddaughter's room, pictured here, kept suffering from cracks and holes. Soder would often try to patch them.
CHARLES FOX / Staff Photographer
Frankford resident Christine Soder has lived in her rowhouse for years, but due to her low income put off necessary repairs. Her granddaughter's room, pictured here, kept suffering from cracks and holes. Soder would often try to patch them.

The problem disproportionately affects low- and moderate-income homeowners, largely for two reasons, the Fed study found. Many cash-strapped homeowners tend to defer maintenance and small fixes, further exacerbating the problems and creating more issues. Additionally, housing that lower-income homeowners can afford may be “older or in relatively poor condition,” the study says, and therefore need more repairs.

In the Philadelphia division, 41 percent of homeowners who applied for a loan between 2015 and 2017 lived in low- or moderate-income neighborhoods. In additional, 56 percent of applicants lived in neighborhoods where the majority of residents are minorities.

Across the entire Third District, the Fed study found, denial rates were worse for low- to moderate-income homeowners, compared with the entire applicant pool.

Yet the problem is heightened for low-income applicants who are also minorities or women, the Fed found. In the Philadelphia metro division, for example, 77 percent of black low- or moderate-income applicants were denied improvement loans, versus a 61.3 percent denial rate for white low- or moderate-income applicants. Hispanic and Latino applicants in the Philadelphia metro division were denied more often, the study found, with an 80.6 percent denial rate.

Philadelphia women who were low- or moderate-income were also denied slightly more frequently than men.

Credit history was not considered in the Fed’s analysis because financial institutions were not required to report credit scores, debt-to-income ratios, or other factors often used in the loan process.

Hestia Construction owner Rachel Street (left) sweeps debris off the floor as Ivey Air worker Frank Masterson prepares a wooden beam to be added to Christine Soder's home in Frankford. A significant portion of Philadelphia's housing stock is old and needs significant repairs. The open wall in Soder's house was long hidden by a black curtain.
TIM TAI / Staff Photographer
Hestia Construction owner Rachel Street (left) sweeps debris off the floor as Ivey Air worker Frank Masterson prepares a wooden beam to be added to Christine Soder's home in Frankford. A significant portion of Philadelphia's housing stock is old and needs significant repairs. The open wall in Soder's house was long hidden by a black curtain.

“When [homeowners] defer repairs that they can’t make out of pocket, it has negative implications for the quality of life in that house. That can have pretty negative impacts on their day-to-day life,” Divringi said. “It can also have negative effects on maintaining your home’s value. Your ability to build wealth in your home.

"That is one of the areas where it is concerning to see the racial disparities in the denial rates.”

The Fed’s study comes during a renewed national conversation about redlining — racial discrimination in mortgage lending. African Americans and Latinos continue to be denied conventional mortgage loans at rates higher than white residents, recent investigations have found, even decades after the practice was banned.

“Historically, policymakers have largely focused on facilitating access to home purchase loans for [low- or moderate-income] or minority households,” the study’s authors wrote. “In light of these patterns, perhaps more attention to home improvement loan accessibility is warranted.”

But in the meantime, Divringi said, “additional exploration and brainstorming around policy solutions is needed.”

Philadelphia is in the process of launching a low-interest loan program to give homeowners with credit scores as low as 580 as much as $25,000 to fix their aging homes. The program, born from an increase in Philadelphia’s real estate transfer tax, is expected to launch next year.

Housing advocates say that home improvement loan accessibility needs more attention. A study by the Philadelphia Fed found that low- or moderate-income homeowners in Philadelphia and Delaware County are denied nearly 75 percent of the time.
TIM TAI / Staff Photographer
Housing advocates say that home improvement loan accessibility needs more attention. A study by the Philadelphia Fed found that low- or moderate-income homeowners in Philadelphia and Delaware County are denied nearly 75 percent of the time.