These are some of Philadelphia’s hottest neighborhoods and their average home prices. If these numbers seem high, they are — at least compared to where they were a year ago. Since the start of the pandemic, home prices in Philadelphia have appreciated more than most other big cities, especially in areas outside of Center City. Also unlike other large metropolitan areas, home prices in the city proper are appreciating faster than the suburbs.
So what’s going on in the world of Philadelphia’s extremely competitive residential real estate market? The short answer is supply and demand. The long answer is also supply and demand.
Active listings are at record lows, and homes that aren’t luxury or in need of major repairs are selling within days of being on the market. When you account for the demand, after having been too financially constrained to buy a house at a normal rate in the past decade, many millennials are now storming into the housing market to buy their first house, taking advantage of historically low interest rates and putting the money they saved while in lockdown towards a down payment.
The reasons why people are buying homes vary. Because of the pandemic, some people felt unsafe or were inconvenienced by living in large apartment buildings and wanted more space. Last year’s social unrest also contributed to the social migration out of large urban centers and into smaller cities that was already happening before the pandemic.
Regardless of why people are buying, it’s a “red hot market”, says Drexel economist Dr. Kevin Gillen, and that’s likely not going to change any time soon. Homeowners are still hesitant to place their house on the market and many seniors staying in place instead of downsizing. With high lumber prices delaying construction, a much-needed construction boom isn’t on the city’s horizon either.
So what can be done in the meantime to help increase the amount of affordable housing on the market?
The City of Philadelphia can’t do anything about the price of materials, explains Dr. Gillen, but they can change zoning variances, how developers get a building permit, and how parcels are assembled in order to allow developers the ability to affordably make workforce housing.
“We've got New York construction costs, but we've got Baltimore rents and prices,” he tells News Break. “That skews development towards the upper end of the market, because that's the only [type of housing] on the market you can make a profit on in Philadelphia, so we don’t build workforce housing without subsidies of some type.”
Dr. Gillen also urges the city to be more transparent about sharing data that should be shaping housing policy in Philadelphia. Currently, it’s impossible for economists and researchers like Dr. Gillen to fully determine the impact of the city’s tax abatement on new and rehabilitated properties on the local housing market because the city stopped sharing data on why tax exempt properties are exempt. That data is crucial in determining whether the abatement program is worth its cost, is attracting new residents to the city, and keeping newcomers in the city.
Changes to the abatement, which are set to start happening in the new year, and other proposed housing legislation in the city will have a much bigger impact on the housing market — and the amount of affordable housing in the city — than increased interest rates, according to Dr. Gillen.
“I am worried about affordability becoming an increasing problem because house prices have been growing faster than incomes, which means we're either going to have a correction of some type like we did 12 years or so ago, or we become like New York or San Francisco, or we just become moved to a higher plateau of general housing and affordability,” Dr. Gillen says.