Is The Center City Housing Boom Sustainable?
Center City may have just regained momentum as a job generator, thanks largely to adjacent University City, but its housing market has taken off like a rocket, and the Center City District’s new report on housing, “Building on Optimism,” explains what’s produced this meteoric rise in great detail.
As for whether the core-city housing market can continue to build on that optimism…well, the devil’s in the details, and that rosy report points out where the thorns are.
But first, let’s smell the roses. Greater Center City — the area from Girard Avenue on the north to Tasker Street on the south between the rivers — has become one enormous construction site, with a record 2,506 housing units produced in 2016, the most since the district started keeping track of residential construction in 2000. Even more units are in the pipeline: 5,379 units are slated to be completed in the next two years, with the bulk coming on line this year.
The difference between the current construction boom and the last one, just before the Great Recession, is that this one is overwhelmingly tilted towards rental apartments. The 1,833 rental units produced last year is more than all the housing completed in Center City in 2007, the last year of the previous boom. Condos dominated that one, by the way.
In the production of housing for sale, the balance has also shifted this time around, with more than 3.5 times as many single-family units (528) as condos (145) completed in 2016.
These homes are being introduced into what may be the biggest boom market for sellers in the city’s recent history. Sales volume last year rose 7 percent and average sale prices 6 percent while days on market fell eight percent. The five-year trend has been equally dramatic, with days on market plunging 32 percent in the Vine-to-Pine core and 35 percent in the districts to its north and south.
This puts Center City homeowners in clover, as their homes have on average increased in value by 6 percent per year. Econsult Solutions’ Philadelphia Housing Index shows that the Greater Center City housing market has not only recovered from the Great Recession but surpassed the pre-recession peak.
The rental housing market has largely been driven by a handful of large projects: more than half of those 2,5o6 housing units completed last year were located in eight large apartment complexes. And while the surge in demand for rental housing in Center City has been driven by a huge influx of millennials, who now make up 40 percent of Greater Center City’s population, the construction surge has occurred mainly at the upper end of the market. Because most millennials aren’t yet ready to trade up, the report notes that a surplus of apartments is already causing rents to soften at the top: while asking rents continued to rise in 2016, at least one survey of rents showed them barely budging, and none of the surveys capture concessions like free months of rent designed to fill units without lowering asking prices. As even more units come on line next year, the downward pressure on rents could grow.
Those millennials do show a strong preference for renting and for urban living, both of which augur well for Center City’s fortunes. But half of them don’t see themselves still living in Philadelphia five to ten years from now, according to a Pew Philadelphia Research Project survey cited in the report. The biggest thing that would lead them to leave, the survey found, was “jobs and career,” given by 38 percent of those surveyed; “schools and raising children” trailed by a sizable margin of nine percentage points. Philadelphia’s job growth rate of 1.1 percent annually since 2010 is an improvement on the past, but it’s half the nationwide average and only 39 percent of the rate posted by the 25 largest cities in the country as a whole.
Meanwhile, while more Center City residents are sending their children to and working to strengthen their local public schools, Census Bureau data show that about one in four families leave the city by the time their children reach school age.
What civic and business leaders need to do, then, to sustain the momentum are:
Find ways to keep new arrivals in the city once they arrive from outside it. The city’s many colleges and universities provide potential new residents to replace the shrinking stock of new millennials. They need to be encouraged to remain.
Figure out how to strengthen the public schools. Parents have stepped up to the plate, but funding issues remain obstacles.
Rev up the city’s job growth engine. This may be the biggest challenge, given the state’s overall anemic performance in this category. Property tax reform, a cause CCD Executive Director Paul Levy has championed, may help, though.
In the short run, the coming apartment glut will likely depress rents as fewer new households chase more open units, but if the other issues are addressed, the city should be able to keep the Center City housing market healthy overall.
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