Cranes are everywhere in Philadelphia these days, from atop the Comcast Center to high rises on the other side of the Schuylkill and several places in between. They are the symbols of Philadelphia’s building boom.
Earlier this week, the Center City District released its annual housing report, putting some insight and numbers alongside what we can see in the skyline. The news, for now, is good. The year 2015 marked the third in a row that at least 1,500 housing units were completed and put on the market. Even better, demand has kept up with supply. These new apartments, condos and houses have been gobbled up by mostly renters and some buyers quickly.
The future is murkier. Looking at the Center City District’s data, it’s possible to see how this great building boom of the present could soon turn into a bust.
We might be in a housing bubble
Greater Center City, defined as Girard to Tasker, river-to-river, could soon have too much new housing and not enough people moving in to fill it. The Center City District breaks it down like so:
The next three years, 5,833 housing units are under construction and scheduled to be completed in Greater Center City (about three-quarters of them will be rental units). Another 8,000 have been proposed. This comes after the addition of 6,507 housing units from 2010 to 2015, about 1,301 per year. From 2010 to 2015, the population growth rate for Greater Center City was 1,299 households per year, basically equal to the addition of housing units. No wonder the vacancy rate for this area was about 3 percent at the end of 2015.
But the 5,833 new housing units scheduled for 2016-18 means about 1,950 new places will come on the market per year over the next three years. If Greater Center City’s growth rate continues to be +1,299 per year, that won’t be enough. The growth rate will need to increase by about 650 more households per year to match the increase in housing. That means more new people will need to move in, or fewer people will need to move out.
And keep this in mind: The Center City District is using an average for growth of the last five years. The rate of population growth in Philadelphia has already been slowing down. It’s likely that for Center City’s population to keep with the pace of the construction boom, the growth rate will have to increase by even more than 650 households per year.
Rent is increasing (almost) everywhere
Based on rates The Center City District used from RentHub, here’s how rent has increased in Greater Center City neighborhoods from 2014 to 2015. Again, the Center City District has set these arbitrary boundaries to mean Girard to Tasker, river-to-river. So sorry, Fishtowners. Your neighborhood wasn’t included.
While South Philly neighborhoods were still plenty cheaper than places like Old City, Rittenhouse Square and Northern Liberties, their prices are going up. Point Breeze saw the second-biggest rent increase from 2014-15, and Pennsport saw the fifth-biggest.
The only places surveyed that experienced declining rents were Bella Vista, Callowhill and, surprisingly, Northern Liberties.
It comes up time and again: Philadelphia needs to hold onto millennials. And the task won’t be an easy one. According to Pew, some 50 percent of young people expect to leave the city within the next 10 years, largely because of a lack of career opportunities and concerns about schools. The Center City District has a few numbers that can be used to describe how that dropoff might look if things don’t change.
In 2000, about 50,000 people age 20-to-34 lived in Greater Center City. They are now part of the 35-to-49 age group, and only 33,000 of them live in Greater Center City. The numbers suggest that about nearly one-third of those young people moved away from Philadelphia.
What would a similar exodus look like these days?
Greater Center City, in 2015, was home to about 70,000 20-to-34 year-olds (they make up about 40 percent of Greater Center City’s overall population). If one-third of them move away in the next several, it would leave Greater Center City with about 45,000-50,000 35-to-49 year-olds. That’s more than it has now, but the problem will be replenishing those who leave with more young people. The millennial generation is massive and has partially driven this population and building boom. The next generation, pretty much everyone under 18 right now, is much smaller. They won’t be able to offset a loss of population the way millennials have.
So if more millennials don’t choose to stay in Center City at a greater frequency than their predecessors, this housing boom Philly’s seeing really might be a bubble.