Industry News - Construction

Friday, February 19, 2016

Job, education fixes needed to maintain demand for Center City apartment supply



More jobs, attracting and retaining millennials along with improving funding for public education are keys to keeping Center City’s supply of apartments and condominiums in equilibrium, according to Center City District’s annual report on housing.


While gains have been made to attract people to live in the city and, as a result, increased its population, those inroads are threatened by decades old problems that continue to plague Philadelphia — tax policies that deter companies from setting up in the city and a poor public educational system that lacks funding.

For as much as that has changed in Center City, there are some things that haven't.

Both of those issues continue another decades old dynamic – people leaving the city in search of work and better schools.

While that has slowed, it hasn’t been eliminated. Data show that between 2010 and 2014, 21,000 people from the region moved into the city while 28,000 people who were living in Philadelphia fled to the suburbs, most notably Montgomery County. That’s a net loss of 7,000 for the city.

“We have to be careful that our hype doesn’t obscure the facts. Funding for schools is essential, but job growth exceeds that,” said Paul Levy, CEO of Center City District, during a presentation of a report called: Sustaining Demand for Downtown Housing. “People move to where the jobs are.”

Though there is an increasing trend of companies from outside the city relocating into Philadelphia or setting up satellite offices, it’s not enough. On a national level, the top 25 largest cities are experiencing 2.8 percent increase in private sector job growth. Philadelphia is not among those cities, but places such as Boston and Memphis are. Philadelphia is recording a 1.1 percent increase in private sector job growth and regionally it's at 1.3 percent.

Levy directly linked job growth in Center City to the health and sustainability of its housing market, the residential development projects underway and in the pipeline, as well as rental and sale prices. So far, demand has been meeting supply and other indicators are positive but there are hints that trouble could be on the horizon if job growth and other issues aren't tackled.

Developers may already be taking note. There's been a steady decline in the number of apartments, and to a lesser degree condominiums, being constructed.

In 2015, 1,538 housing units, mostly rental, were completed. That's 22 percent fewer than 1,983 completed in 2014 and a 26 percent drop from a record of 2,091 in 2013, according to the CCD report.

Rents rose by 3.1 percent over 2014 and the vacancy is at 2.8 percent compared with 5.7 percent. On the for-sale front, sales are up, prices increased and the number of days on the market has declined.

“But with 5,833 units, 78 percent of which are rental, now under construction and many more proposed, continued market equilibrium depends greatly on the timing in which these new units are delivered during the next three years, the duration of the current national economic expansion, and Philadelphia’s ability to generate more dynamic job growth and retain a greater share of young professionals as their children reach school age,” the report said.

There’s another 8,000 units in projects that have been announced but have not yet broken ground.

For demand to meet the supply under construction, the city will need to attract 650 more households a year above its existing growth rate. That can be done through a variety of ways including keeping a certain percentage that might move out to the suburbs for a job or schools, bringing in people through job opportunities and even other slightly more desperate maneuvers such as developers taking longer to deliver units or having obsolete units demolished.

“This is a cautionary tale. Fifty percent of the millennial population don’t expect to be here in the coming decade,” Levy said, citing a 2014 study by Pew Charitable Trusts.

The No. 1 reasons: Lack of job opportunity and schools.

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