Multi-housing News interviews Donald Tracy of LCOR, a multi-family housing developer, about Philadelphia’s apartment market, and he sees major opportunities for expansion:
MHN: How is the market right now in Philadelphia?
Tracy: I think this is an important time in Philadelphia real estate. There’s a lot of activity, but it’s a market that has seen moderate but steady growth over the years. It’s an economy and population that continues to see growth. I was reading an article the other day, and a part jumped out at me: The population of 18-34 year olds in Philadelphia continues to grow. And that is bolstered by the fact that so many of the college students that come here for their education stay here. There’s an opportunity to provide quality housing for that group in an institutionally financed way that perhaps was a slow process in the past few years, but has grown over the last two years. There is a significant pipeline in the next few years that will continue to grow.
MHN: Do you think that’s similar to the trends in the rest of the country, or is Philadelphia an anomaly?
Tracy: I don’t think Philly is an anomaly. I think what it is is a place that hasn’t been the core focus of a lot of attention over the past few years, and now is a terrific time to focus that attention. Whereas other markets in the country might be reaching a point of oversupply, or reaching a point where land values aren’t as advantageous to new development, Philadelphia represents a nice opportunity where you can still execute transactions in a very favorable way.
Translation: there’s a lot of demand for apartments in Philadelphia, and people want to build more. Chris Briem is showing us the same thing in “red hot” urban Pittsburgh. Vacancy rates are very low, and rents are up.
Go back to the second paragraph of the MHN interview now. Translate “land values” into “rents” for easier reading. He’s saying that in some areas of the country they’ve built a lot of new multi-family housing and now there’s a bit of oversupply. That’s not the case in Philly. There are fewer apartments than people want to use, so rents are high, and developers can still count on a fat revenue stream from high rents even if they build more apartments. They’ll be able to build more for a while and then rents will fall once they overshoot and build more than population growth can absorb.
But we’re not there yet. So to the extent that zoning regulations like 38-foot height limits and statutory parking minimums and other anti-density policies are adding to the overhead costs of developing new apartments, and they are, there’s a free lunch to be had from rolling back some of that stuff. Without spending any money, you can get more housing investment and construction jobs. It’s a free deregulatory stimulus if you want it.