Report: Future bright for Center City housing

If the experts are correct and the future will bring a shift to urban from suburban, then Center City merely needs to hang in through the current hard times to reap the benefits.

That's the gist of a report, "Residential Development 2009: Riding Out the Storm," presented today by the Center City District and based, among other things, on a survey of residents in eight zip codes from Tasker Street north to Girard Avenue and between the Delaware River and the Schuylkill.

Nearly 3,100 residents, or 3.3 percent of the population of those zip codes, responded to the June survey, district president Paul Levy said.

The survey was conducted amid continued bad economic news nationally and as the city wrestled with a severe fiscal crisis. Yet 81 percent of the respondents expressed confidence in Center City's future, Levy said.

Trends are favoring downtown housing, said real estate analyst Jeffrey Otteau of the Otteau Valuation Group in New Brunswick, and not because of young professionals and empty nesters returning to cities.

In the postrecession economic cycle, Otteau said, incomes will actually drop, and affordable housing will be concentrated in urban areas. "Two-thirds of households will have no children at home, energy costs will rise, and vertical construction in the downtowns [will be] more sustainable."

Levy said this was the first major recession in which the city has lost fewer jobs than either the region as a whole or the nation, noting, "Philadelphia is extraordinarily well-positioned for economic and residential growth."

Between July 2008 and August 2009, the city lost 3.08 percent of its jobs, while the region declined 3.32 percent and the nation, 4.2 percent, according to recent data from the U.S. Bureau of Labor Statistics.

Philadelphia "has the right mix of industries to weather this economic storm, including health care, educational services, and asset management," said Moody's Economy.com chief economist Mark Zandi.

Although the real estate market here has not fared as badly as comparable first- and second-tier cities, sales remain well below normal levels, economists said.

"Currently, home sales are about 30 percent below what they would be in normal times, and 60 percent below what they would be during very good times," said Econsult Corp. Vice President Kevin Gillen.

Still, some luxury condominiums in the business district notwithstanding, prices were just 3.6 percent lower in the first six months of 2009 from the first half of 2008, according to data from Trend Multiple Listing Service.

The $8,000 tax credit for qualified first-time buyers has boosted sales in the below-$400,000 market.

"I'd been renting, but saving for a down payment and looking around at properties since I moved here in 2006," said Johanna Ashley, 31, a pharmacist who bought and is rehabbing a unit at Pier 3 condominiums on Columbus Boulevard.

Though she does not expect to get the whole tax credit because of income requirements, "it was a huge thing," although a price in the neighborhood of $300,000 and parking also were important.

Ashley was also impressed by how well Pier 3 had held its value. After acquiring Pier 3 (built at the site of the former Girard Piers) for $7.2 million in 1994, Miami developer Joe Gamel sold 172 units at prices ranging from $49,000 to $150,000.

Over the last five years in Center City, 227 new or converted condo units came on the market annually. Right now, there are 515 units unsold, or a 2.5-year supply.

"While unsold units are very painful to developers and lenders, one consolation is that there are no units in the pipeline behind them," Levy said. If the market were to return to normal tomorrow, it would be two or three years before any new housing would reach the market to compete with them.

Most of the unsold units are concentrated in a handful of buildings that came late to the market, just as empty nesters began having trouble selling their homes and jumbo mortgages (above $417,000) became more expensive and difficult to obtain, he said.

The Center City population continues to grow as the rest of Philadelphia contracts, however, and the 10-year tax abatement, effectively reducing high construction costs, has helped add 12,121 units of housing to the business district since 1997.