Millennials help build a Phila.-region apartment boom
K.C. Kappen and Rachel Ballard believe that renting a place to live "simply makes sense," given their current situation. Kappen, 26, a junior account executive for social media and public relations with the Brownstein Group in Philadelphia, arrived here with Ballard, 25, from Southern California in June.
K.C. Kappen and Rachel Ballard believe that renting a place to live "simply makes sense," given their current situation.
Kappen, 26, a junior account executive for social media and public relations with the Brownstein Group in Philadelphia, arrived here with Ballard, 25, from Southern California in June.
Ballard will finish graduate school in the next 18 months, Kappen said, "and I'm in the beginning stages of my professional career." Renting "gives us a chance to weigh our options and see what areas of Philadelphia we prefer."
Thousands of other millennials have come to the same decision, for a variety of financial reasons, so rental apartments continue to fill a growing housing need in the Philadelphia region.
Although much debate surrounds both the meaning and duration of this shift from buying to renting among people under 34 - historically, the quintessential first-time homeowners - it is contributing to an apartment boom here.
And that boom has given a shot in the arm to the regional economy, $14 billion in 2013 alone. For the United States as a whole, the economic contribution was $1.3 trillion.
A study by George Mason University's Stephen S. Fuller for the National Multifamily Housing Council and the National Apartment Association showed that 544,300 people, or 9 percent of the Philadelphia area's population, live in its 321,200 rental apartment units.
Thirty-four percent of those apartments are in buildings of 50 or more units, Fuller said.
While single-family-home building still lags, multifamily rental construction accounted for 49 percent of building permits issued in the region in 2013, valued at nearly $367 million, he said.
Spencer Yablon, senior vice president for capital markets/multifamily at CBRE Group in Wayne, said apartment fundamentals remain good and support "near-term growth."
"Rental-rate growth makes for favorable investment," Yablon said, noting that the continued difficulty of first-time buyers to qualify for mortgages and an increasingly mobile younger population benefits the region's multifamily market.
That isn't to say increased demand has made it easier to build apartments in suburban communities, which have often fought developers in court.
"It is still difficult getting entitlements in the suburbs," said Joseph Mullen, president and CEO of the Madison Apartment Group, in Philadelphia, which opened the 240-unit Madison Providence in Collegeville to its first tenants last week. "When we can point to other properties that are professionally run and the upscale resident base, some of the fears go away."
Borrowing for multifamily projects still comes with low interest rates, Yablon said, "especially for developers with strong track records." Property-management companies from outside the area consider the Philadelphia region an excellent long-term bet.
Adam Mermelstein of Treetop Development, in Teaneck, N.J., bought the 502-unit Charter Court apartment complex in East Falls for $47.3 million last year. He said Philadelphia "has similar demographics" to the New York area, a "healthy" business district, and a good transportation system.
"We felt that we could build off of the positive trends that have been going on in Philly relating to the renovations and new construction that has taken place over the last five years," he said, adding that Treetop is looking for other possibilities in the city and on the Main Line.
Multifamily developers and other industry experts believe what is happening in today's market is very much a long-term trend.
David Della Porta of Cornerstone Properties, in Villanova, who develops both for-sale and rental units, said the home ownership vs. rental rate is moving from 70 percent/30 percent to 60 percent/40 percent, "and maybe beyond."
"The new generation - more mobile, marrying and having children later - understands that owning a home is not the best investment," Della Porta said. "It is a good lifestyle choice for many households but is not the American dream."
Economist Kevin Gillen, who tracks the local housing market, noted that many millennials don't want to become homeowners because renting offers "decreased responsibility and greater freedom."
Because of the 2007 market collapse and the prolonged downturn that has followed, "this is probably the first generation in U.S. history that is relatively risk-averse when it comes to home ownership," said Gillen, chief economist of Meyers Research and senior research fellow at Drexel's Lindy Institute for Urban Innovation.
Mullen concurred, adding that it "is hard to be mobile and move to a higher-paying job" if you have to sell a house.
Kappen said he and Ballard would not rent forever.
"A few years ago, the poor state of the economy left me feeling less optimistic about ever becoming a home buyer," he said, but new optimism makes him believe that "buying a home will actually be attainable in the next couple of years."
Rentals Market By the Numbers
Apartment-industry contribution to the regional economy: $14 billion
Jobs supported: 131,000
Wages from those jobs: $1.1 billion
Renters: 544,254 (9 pct. of population)
Occupied units: 321,203 (34 pct. in buildings of 50-plus units)
One-person households: 57 pct.
Average monthly rent: $1,414
Renters' spending: $10 billion contributed to region's economy
Construction value (including jobs): $852.3 million
(All figures for 2013)
SOURCES: Stephen S. Fuller, George Mason University's Center for Regional Analysis; SmartAsset