A communist graffiti artist is on an amazing rampage in our neighborhood. Here’s a building project happening around the corner from us that I took on a walk.
Walking around our neighborhood (now with Thisbe sleeping on my chest!) I’ve been noticing lots of construction happening. It’s happening all over Philly. Of course there’s ‘gentrification’, some white and nonwhite PMC returning to cities after a previous generation of white flight and deindustrialization. But there’s other stuff happening too, particularly in the last ten years.
Property values have nearly doubled in Philly over that period, and that’s a pattern in many urban areas. Those values can’t be mirroring demand. Of course demand has increased, but it couldn’t have doubled in ten years. Philly’s population has largely stayed the same in that period.
So why all the construction?
My guess: interest rates have been very low in the decade since the financial crisis. When you have low interest rates you have more borrowing and lending. I bet construction companies, real estate developers, and others in that market have been incentivized to take out cheap loans, build new stuff, and rely on the non-negligible increase in consumer demand such as it might be (or not!). I bet landlords, property management companies, etc are also incentivized by low rates to take out mortgages.
All of this, I imagine, is propped up by active real estate investment trusts also incentivized by low interest rates, with oodles of cash and interested wealthy investors looking to park money in something stable but also profitable.
But the demand in this case is on the ‘supply’ side, to the extent that the industry supplying and financing the real estate can do business with itself. That’s a funky kind of demand I’d like to read more about (is it ‘industry demand’?).
So there’s demand in the real estate industry, which drives up the price of the properties and increases the construction. But then not as many people buy the properties. If there’s high enough demand among the companies building, leasing, financing, and selling the properties then it wouldn’t matter in the short-term, and given the increased demand for urban living then, cool.
Except of course for the internal-colonial force pushing out poor and working class communities who can’t afford the taxes anymore or get kicked out by landlords who sell their buildings when they smell prices rising. The suppliers and developers probably just think ‘there’s nothing there’ when in fact whole working class communities of color are surviving and maybe thriving there despite the bad conditions.
In any case, seems to me the gap between consumer demand and the demand in the industry could possibly widen to an unstable degree. Add to that the pandemic’s effect on real estate where you have increasing forbearance, a sudden shock on both the supply and demand side bringing all activity to zero, and sunk mortgages in commercial real estate. I wonder what happens.
I was thinking there might be a ‘stop light effect’ where all the deals that were going on at their different paces had to stop during the shut down in March/April. But now the light is turning green and everyone is going at the same time. Maybe that causes some traffic patterns and turbulence. I’m not sure.
Also, the school district is (was?) undertaking a massive re-examination of its catchment boundaries given population shifts in the last decade. Wonder how this real estate pattern will effect that process?