Nov. 16, 2018
New multifamily rental projects accounted for 68 percent of all new housing construction in Greater Center City last year, and 97 percent of all new construction in the city core.
A continuing influx of residents, the bulk of them Millennials, has continued to fuel a housing construction boom in Center City and the areas to its immediate north and south, according to the Center City District's latest analysis of the state of the Center City housing market. And while this influx shows no signs of ebbing soon, there are a few issues the city needs to address if the housing market in Center City and the city as a whole is to remain healthy in the long run.
Production of new housing in 2014 remained strong, according to the report. The 1,983 new units that came on market was only slightly less than 2013's record-high 2,168 new units. And as in 2013, the great majority of these units were rental apartments: 1,358, or 68 percent of the total. Production of housing for sale, however, moved up sharply from last year: the 442 single-family homes and 183 condominiums accounted for 32 percent of the total, nearly double last year's 18 percent share.
Almost all of the new construction in the Center City core—the area within the 1682 city boundary, bordered by the two rivers, Vine and South streets—was multifamily rental, with two projects, 1900 Arch and Icon, accounting for the bulk of the 665 new units. The development picture in "extended" Center CIty - from Vine Street to Girard Avenue on the north and from South to Tasker streets on the south—was more mixed, with single-family infill residential construction particularly strong in Point Breeze. Toll Brothers City Living's second major Greater Center City project, the 68-unit 2400 South townhouse development, also came on market this year.
Center City District Executive Director Paul Levy noted that continued strength in home sale prices helped support increased production of homes for sale. "The median sale price has passed its 2007 peak," he said, reaching a high of $307 per square foot, and average sale prices rose 6 percent from 2013 to 2014.
Equally good news from the perspective of landlords is that the flood of new apartments has been absorbed by the market. With the notable exception of Rittenhouse Square, the city's highest-rent neighborhood, median rents per square foot rose throughout Greater Center City last year, with most of the greatest increases occurring in the lowest-rent districts. Point Breeze, the second-cheapest neighborhood, led the way with a 17 percent increase, and bottom-dweller Grays Ferry posted the third-highest gain, 11 percent. In between these two was Callowhill/Poplar (the "Loft District" in agent-speak), where rents rose 14 percent. All other Greater Center City neighborhoods posted single-digit increases ranging from 2 percent in Washington Square West to 9 percent in Society Hill. Rittenhouse Square rents fell by 5 percent but remain the highest in the city, at $2.47 per square foot.
New single-family residential construction projects like the RIttenhouse Estates, shown here under construction in the summer of 2014, accounted for a mere 3 percent of new housing units produced in the Center City core in 2014.
The CCD report notes that if recent population growth trends continue over the next five years, the market should continue to be able to absorb the new units both under construction and projected to start. Currently, 3,681 new units are in the pipeline, with apartments accounting for 75 percent of the total (90 percent in the core), and another 1,733 apartments and condos are on the drawing boards. Should Greater Center City's population continue to increase at the 1.6 percent average annual growth rate of the period from 2008 to 2013, the market should be able to absorb all of these units without a hiccup assuming they come on the market gradually over the next several years.
Going forward, the locus of action within the core is shifting to the east of City Hall, with the East Market mixed-use project leading the way. "This is a good sign for the future of Market East," Levy said, "and the shift will help reinforce the retail trends we now see developing on Market East."
Levy noted that in Philadelphia since the 1970s, "we didn't have a back-to-the-city movement as much as a stay-in-the-city movement." Center City's population stability was masked by the continued decline in outlying areas for much of that period. But some demographic and employment trends point to possible problems further down the road.
The more recent population surge in Greater Center City has been largely fueled by Millennials from 25 to 34 years of age, whose population has exploded since 2000. Residents in this age group, most of whom were Generation Xers in 2000, represent the largest demographic group in Greater Center City. But, as Levy noted, "if all of those younger residents in 2000 had aged in place, the demographics above Millennial would be significantly larger." Instead, the population of older Center City residents has fallen since 2000 in all demographics save 55- to 69-year olds—Baby Boomers who have returned to the city after emptying their suburban nests.
This points to one of the two main challenges facing both Center City and Philadelphia as a whole in the years to come: Strengthening education. The report notes that ensuring adequate funding for education is one of two keys to the city's future health. The other is employment. Center City and University City now account for 55 percent of all jobs in the city, but growth trends in the city remain anemic. In addition, office-based employment has fallen 5.7 percent since 2000 and has not even returned to pre-Great Recession levels. (The conversion of a number of former office buildings in the Market Street West and Rittenhouse Row corridors into residences is actually a sign of the trouble.)
Levy noted that the losses were offset somewhat by a huge surge in self-employment and sole proprietorships, which have jumped 55 percent in the city since 2001. But much of the growth in this category comes in fields that do not require a college education and thus don't pay as well: while the average income for wage earners citywide was around $71,000 last year, the average income for the self-employed hovered around $22,000. The bottom line? "We need to add jobs across the city," Levy said. Smart tax policies can help the process along, the report concluded.