The process of improving land is called real estate development. Real estate developments are planned, organized and managed by people called developers. Developers may be the public sector, the nonprofit sector, the for-profit sector or a combination of all three.

When the public sector partners with the private sector to develop real estate, that’s called a public-private partnership. In a public-private partnership, both parties contribute assets that help pay for the development. Typically, when the public contributes to a public-private partnership, it gets something virtuous in return.

Pittsburgh City Council is currently engaged in a virtuous policy debate about how best to encourage developers to create more affordable housing. Two competing zoning provisions emerged in recent months whereby one proposed a simple mandate for affordable housing, and the other proposed a public-private partnership model for affordable housing. The simple mandate is backed by Mayor Ed Gainey. The public-private partnership model is backed by Councilman Bob Charland from the South Side.

During their July 8 meeting, City Council voted down the public-private partnership model, suggesting preference toward Gainey’s simple mandate. Councilmen Charland and Anthony Coghill were the only two council members voting in favor of the amendment.

I encourage the remaining council members who voted against the amendment to continue a thoughtful conversation around this topic and improve the simple mandate into a policy that adequately reflects the challenges and risks that come with developing real estate.

Prior to proceeding with a real estate development, a developer creates a spreadsheet that attempts to guess the financial viability of their project. The individual numbers within the spreadsheet reflect the many individual variables that contribute to a project’s bottom line over the course of time. Collectively, these numbers create what’s called a pro forma. The more complicated a project, the more complicated its pro forma.

If a developer’s pro forma fails to indicate project viability, the developer will not build the project. Within pro formas that model new apartment developments, the strongest variable that predicts viability is called rent. Rental income is projected on a monthly basis. As the number associated with the monthly rent variable moves up or down, so too does the viability of the pro forma.

Pittsburgh City Council is considering a mandate that requires adjusting 10% of rent numbers down so those making 50% or less of the area’s median income can afford apartments. As a result, fewer pro formas will indicate viability, less housing will be constructed (affordable or not) and the development community will start building pro formas for places outside of the city, like Cranberry.

The result is reduced investment, an eroding tax base and decreased housing supply across all price points. Adopting a policy that produces the opposite of lawmakers’ stated goals is called counterproductive.

What was smart about Charland’s proposed policy solution is that it offset the losses in rent by reducing a different variable, this time on the expense side of the pro forma, called property tax. Thus, both parties are contributing assets that help pay for a development, otherwise known as a public-private partnership. Typically, public-private partnerships are formed so the public gains community value above and beyond minimum standards. In this case, the value proposition is affordable housing.

Even the federal government recognizes the value of public-private partnerships for affordable housing. They provide an asset that helps minimize the impact of low rents called Low Income Housing Tax Credits. Such projects are a public-private partnership that goes all the way up to the federal level.

It’s disappointing that legislation failed that would actually create more affordable housing. On the plus side, it’s heartening that City Council is continuing the conversation, and I encourage them to engage with the development community to craft a win-win solution that creates more affordable housing and doesn’t jeopardize the viability of future housing developments. After all, working with all stakeholders to craft sound policy is called good leadership.

Mike Tedesco is Crafton’s community and economic development director.

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