Philadelphia’s New Housing Boom – How Far Will It Go?

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NEW RESIDENTIAL housing is rebuilding many neighborhoods in Phila., and bringing new residents to town.

NEW RESIDENTIAL housing is rebuilding many neighborhoods in Phila., and bringing new residents to town.

BY TONY WEST/ For the first time in a lifetime, Philadelphia is growing. And the pace of growth is picking up. 2014 promises to notch construction of more new residential units than in any year for decades. During the construction phase, essential maintenance and repairs, such as a hydraulic pump repair, are necessary to allow the employees to work efficiently.

How far can the boom spread? How hot can it get? Experts say the city is riding a generational wave as a younger generation of middle-class people prefers the pleasures of urban living and the price is right in this town. It is loaded with vacant properties – around 40,000 lots – so there is plenty of room to develop. Its top industries, education and medicine, appear poised for long-term future growth. Leisure industries are also gaining strength. Companies and home builders who are planning barrages of construction are already contacting contractors, like a Dirt Contractor, for example.

But this influx will hit a wall if schools don’t improve. While it is injecting new zing into neighborhoods within a couple of miles of Center City, it won’t save neighborhoods now in decline until the city can properly provide for new citizens who are children.

PIAZZA in Northern Liberties is part of development wave that is adding tens of thousands of residents where vacant lots once spread.

PIAZZA in Northern Liberties is part of development wave that is adding tens of thousands of residents where vacant lots once spread.

For now, 11 of the city’s ZIP codes are exploding with new housing. They clump in Center City and around its fringes: in near South, near North and near West Philadelphia and in lower Kensington. Also in the game is 19128, Roxborough.

Leading the parade is 19104, which takes in University City and Mantua, with 1,148 residential-unit construction permits by the Dept. of Licensing & Inspections in 2013 and probably even more by New Year’s Eve 2014. But 19146, which takes in Graduate Hospital and Point Breeze, will see more than 500 new units in each year, with 19121 (Cecil B. Moore and Brewerytown) coming close.

Philly began to lose population in the 1950s and reached a nadir in 2006. That year the tide turned. The US Census estimates the city added a net 64,000 residents from then until July 2013. Gary Jastrzab, executive director of the Philadelphia City Planning Commission, says new construction alone from 2008 through 2014 could translate to 37,000 new inhabitants. (Older houses are also being bought, renovated and reinhabited.)

Overall, Philadelphia built 2,141 residential units in 2008, the last year before the crash wiped out financing. The Great Recession depressed starts for several years. But 2013 set a modern record at 3,468 units and 2014 will break 4,000.

One possible explanation is zoning-code reform. By 2007, Philadelphia’s code had acquired 40 years of time-and-money-eating quirks that had brought development to a standstill, despite acres of abandoned land. Years of study and lobbying got the voters to approve a charter change that went into effect in August 2012. Afterwards, construction permits jumped.

Councilman Kenyatta Johnson’s 2nd Dist. has been an epicenter of new construction. Johnson cited a 2013 report by Mayor Michael Nutter, stating, “The code has made some progress in simplifying the zoning and development-approval process. The report found that the code is now more straightforward, which makes development more predictable. The report also found that during the first year under the new code there was an 11% increase in by-right permit approvals and a reduction in the number of zoning variances.” Developers don’t like to deal with zoning variances; they’re an added cost, an extra risk.

A key change in zoning reform was to eliminate required parking spaces for many residential classifications. Parking is expensive and when it is mandated, it forces inner-city neighborhoods which are convenient to public transit to develop as if they are outer suburbs where everyone needs a carport. “This one change made possible many new projects that the old zoning code had discouraged,” said Tom Lussenhop, principal at U3 Ventures, a reputable firm that specializes in market-rate University City development.

But raw market forces are driving most of this housing explosion.

BUILDING INDUSTRY ASS'N President Anne Fadullon says changing lifestyles are major factor in urban housing boom.

BUILDING INDUSTRY ASS’N President Anne Fadullon says changing lifestyles are major factor in urban housing boom.

“The market came back, financing came back. Philadelphia is coming back quickly,” said developer Anne Fadullon, president of the Building Industry Association. The boom began in Center City, she noted, “but now what you see is pressure on Center City where it has expanded. We are seeing areas develop at a pace that is surprising.”

Jastrzab cited “the availability of capital and an increasing willingness to finance these projects, rising investor and market confidence in the long-term future of Philadelphia, and individual developers ready to jump into and take advantage of the rising market.”

Why Philadelphia? It’s a bit of a puzzle, given Fadullon’s assertion that return on investment is half here what it is in the Washington market, for instance. But she proposes there’s a core of locally based investors who are cheerleaders for their hometown.

“At heart, most developers are gamblers,” she said. “We’re betting on long-term trends. We’re starting to pay attention to technology, plus energy development. We have a great location, a world-class port. It’s very fortunate Comcast has decided to stay in Philadelphia. Paul Levy’s done a great job with Center City District. We have one of the highest residential downtown populations in America, with restaurants, arts and culture.” People are moving here for that.

Other developers are even quicker to trash zoning-code reform. It’s a job half-finished, they say, not really online yet.

“The new zoning code has not changed in any tangible way what can be built in a single-family lot in Philadelphia,” said Ori Feibush, a developer active in Center City as well as near North & near South Philadelphia. In his areas, the percentage of parcels that could be built as a matter of right before and after has not changed.

“Zoning reform was supposed to come in two parts but only one part has occurred,” he asserted. “We have seen no remapping in Point Breeze.” Northern Liberties Neighbors Association, which is sitting atop another hotspot, was also frustrated by the slow pace of remapping. This task was completed by September 2014, though, and NLNA is largely satisfied with the outcome.

“Zoning remapping is well underway” and is following Philadelphia2035 district plans, said Jastrzab. “PCPC consults with community organizations and other stakeholders, makes recommendations for zoning remapping to the Mayor and City Council, does the necessary property research, and prepares legislative bills for City Council Members to introduce. “Zoning remapping is essentially a legislative process,” he noted.

THESE ZIP CODES have each seen more than 200 units of residential housing construction permits in 2013 and 2014. Source: Dept. of Licenses & Inspections.

THESE ZIP CODES have each seen more than 200 units of residential housing construction permits in 2013 and 2014. Source: Dept. of Licenses & Inspections.

Partway through remapping now, the PCPC has proposed a total of 6,550 acres to date. Of that, 26% has already been remapped, and 8% are in the works, with 66% still to come. A big chunk of planning for the Lower Northwest District was just added this month.

“Not every parcel of land in a Planning District needs to be remapped. There are plenty of neighborhoods where the current zoning is perfectly appropriate, works well, and for which the PCPC recommends no changes be made,” Jastrzab averred. It’s PCPC’s job to identify where there are mismatches between current zoning and what would work better in the 21st century urban housing marketplace.

Hot neighborhoods are walkable. Residents may own cars but they like to stroll to work, do their shopping and have their fun. So low-scale commercial and residential development tends to run hand in hand, feeding each other.

Convenience to schools and medical facilities is a sine qua non. If your neighborhood can’t offer them, you probably can’t develop it for today’s market. That leaves most Philly ZIP codes outside the current growth zone – but a few might take advantage of local eds and meds that are perhaps under-recognized.

Market-rate housing dominates today’s development. It ranges from $450,000 in favored areas like Northern Liberties to $300,000-350,000 as a rule, with some developers “trying creatively to make $200,000-300,000 work,” according to Fadullon.

Normally one would expect a family income of $100,000 to make a $300,000 new home work. But Feibush says low interest rates, creative financing and bargain-neighborhood shopping are creating market opportunities for middle-income buyers in Philadelphia. “Most homeowners I sell to are making $55,000 a year. They pay very little down. They are recent grads in their late 20s, looking to start families,” he said.

Some of these buyers would qualify for “workforce housing” – the new name for homes middle-income families can live in, but cannot pay for the full construction costs of. Largely because of land prices, it costs $200,000 to build a bare-bones home in Philadelphia. Creative public subsidies and tax breaks can sustain middle-class construction for families earning up to $75,000 a year – not rich but not poor.

The lower tier of new housing – “affordable housing” – has been devastated by federal cutbacks. Basically, if you are lower income, you should shop for a used house, maybe not in the hottest neighborhood.

But politicians are seeking to stem the tide of market forces in their districts. They hope to retain these hotspots as mixed-income neighborhoods by means of jawboning, to force some modest-income housing construction near Center City.

4TH DIST. COUNCILMAN Darrell Clarke has been formulating complex plans to build some new lower- and middle-income housing in desirable neighborhoods where market-rate development is taking off.

4TH DIST. COUNCILMAN Darrell Clarke has been formulating complex plans to build some new lower- and middle-income housing in desirable neighborhoods where market-rate development is taking off.

Council President Darrell Clarke, who represents the 4th Dist. in near North Philadelphia, is eager to come to grips with this challenge of social engineering. Mixed-income communities are healthier, he affirms, as do most urban planners today.

Clarke’s strategy has been to massage the City’s greatest asset in hotspots – vacant land that has fallen into city ownership – to favor lower- and middle-income developments.

Building an Affordable Future, a lower-income rental program, has put out RFPs on publicly owned land. He scavenges funding from programs that have survived the Great Recession: project-based Section 8 and rent subsidies from the Philadelphia Housing Authority, the national Housing Trust Fund, city community-development block grants and Pennsylvania Housing Finance Agency tax credits. Clarke has figured out creative ways to “marry these” so developers can get a maximum boost from several of them at once. His target: 1,000 residential units in hot inner-city neighborhoods.

SOME of Phila.'s new housing is stylish...

SOME of Phila.’s new housing is stylish…

Workforce housing is a different target for Clarke. Again he is seeking to leverage city-owned land by giving it away cheaply to developers who will build middle-income housing – suitable for families of four earning up to $90,000 a year – in neighborhoods that are heating up. “The only equity investment the City puts in is vacant land that heretofore nobody was interested in developing,” he explained. “It was sitting around for years and years, costing us money to maintain it.”

Clarke unveiled his program to promote affordable and workforce housing in hot inner-city neighborhoods earlier this year. He has gotten more than 30 responders offering RFPs so far.

This approach has its critics. Feibush argues that by hoarding city-owned land for subsidized housing projects which are hard to fund, the City is limiting supply and driving up prices in the market-rate development that is obviously working – particularly for middle-income “workforce” buyers, making their dream homes less attainable, not more. Philadelphia should concentrate on what is easy to buy, build and sell, he says.

Ken Scott, CEO of Beech Cos., is a specialist in North Central real estate. His nonprofit group was founded by the William Penn Foundation in 1990 to revitalize the Cecil B. Moore strip, then a blighted afterthought of beleaguered Temple University.

But Temple decided to go after out-of-town students in a big way in the oughts, pumping its resident population and transforming its real-estate landscape. Created to salvage North Central’s real-estate collapse, Beech now casts a wary eye over the jackpot it has played a role in creating.

...BUT NOT ALL new market-rate housing is well-made housing, cautions Ken Scott.

…BUT NOT ALL new market-rate housing is well-made housing, cautions Ken Scott.

Scott is troubled by some of what he sees in new residential construction in North Philly. “Just because it’s new doesn’t mean it’s well built,” he said. “Some of this stuff will fall apart fast.”

Most of the investors in off-campus housing are New Yorkers, he reckons. They don’t care about Philadelphia. And there’s a sleaze factor built in.

“You would suspect there’s money-laundering going on,” Scott noted. “Some of the student-housing deals are all cash, no permits. Builders get zoning approval for one thing but wind up building something else.”

New construction impacts older residences that lie beside it. On the minus side, long-term renters are being jacked up and squeezed out of Cecil B. Moore because of the increase in values on their block.

On the plus side, Scott has seen working-class families reap serious profits when old rowhouses that would once have been abandoned after Mom-Mom died, now go for real money – creating North Philadelphia capitalists.

In some cases, Scott has started to see Black middle-class heirs of older properties in redeveloped Cecil B. Moore (“Temple Town” to other marketers) move back to North Philadelphia. Instead of fleeing to Oak Lane or Cheltenham, they are discovering new value in their family’s inheritance.

Overall, new construction is handsomely outpacing decline and decay for a change in Philadelphia. But some parts of town are starting to hit the “100-year window” when working-class housing starts to age poorly and pose economic hardships on its owners. In places like the Lower Northeast, abandonment and blight are beginning to take off and no market-rate developers are moving to replace lost housing there. Areas like this may be destined to lose housing and population for some time.

White or Black, though, middle-class residents may buy in favored parts of town, but not settle for long – as long as school options are poor, especially in the lower grades.

Typical market-rate buyers are professionals in their late 20s. Many are or will soon be parents of young children. As those children reach school age, remarked Clarke, “they’ll be out of here” unless they have good city schools to use. We’ll remain a city popular with young hipsters – who depart with their five-year-olds, to be replaced by more of the same.

That sets a severe limit on how much Philadelphia can grow.

To break that limit, we must keep middle-class families in town. To do so, we must crack the education nut.

(This story was revised Dec. 31, 2014.)

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One Response to Philadelphia’s New Housing Boom – How Far Will It Go?

  1. For bugs, this housing boom could present a whole new world of opportunity for them as well.

    Concentrated “residential downtown populations” are an open bar to bedbug gastronomy, the cries of which we are hearing from cities like Hamilton, Ont. Insects, biologically designed to respond to sudden abundance, are well known to overrun agricultural endeavors with swiftness. How big will this problem grow and what barriers can we put in place?

    Unlike our predecessors, today many people travel far and wide and live under and on top of each other like never before. We are packed into very close proximity. Our “changing lifestyles” of airplanes, apartments, condos and elevators have opened up a whole new world of bug opportunity. Over the past decades, vacuum cleaners and refrigerators have safeguarded us from countless pests and illnesses. Likewise, new innovations in healthy and safe pest control for today’s housing and travel is needed.

    Given the new study from Penn Medicine where researchers have demonstrated that bedbugs can transmit Trypanosoma cruzi live into their feces, http://www.uphs.upenn.edu/news/News_Releases/2014/11/levy/, it would now be wise to consider what precautions might be taken. Priority should be given to bedbug control technology that does not disperse and increase the distribution of this species. Unlike the winged delivery of pathogens by mosquitoes, our new lifestyles give wing to wingless bed bugs and the potential of disease transmission. It is our new lifestyles that may cause transmission by people-travel, bed-sharing (hotels) and habitat proximity. This new finding calls for considering precautionary actions.

    Beds on legs, a norm by today’s standards, is an innovation precipitated by bedbugs. Developing new construction requirements as norms could help protect people from bedbugs — for example, detailing that seals plumbing and wire passages. Further, new designs in baseboards, door sweeps, electrical outlets and switches that block out bugs by design, could avert dispersal and possible transmission of disease in co-housing units. Attention to window screens is also important. This real possibility of such disease transmission suggest that it would be wise to integrate better bedbug controls into housing projects from the start, because nothing loses value faster than an infested home.

    Paul
    December 26, 2014 at 9:28 pm

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