Though young professionals and older empty nesters have fueled a recent housing boom in urban centers, some economists have cautioned that overdevelopment and flattening rental prices are signaling a shift away from city life. But developers aren’t leaving downtown.
The number of new building permits jumped 5.7 percent in April compared to a year earlier, the Census Bureau reports, with a sizable portion centered in urban areas. The urban residential rental market is “exploding,” Ron Caplan, president of developer PMC Property Group, told CNBC. “So far, the development that we’ve done has been embraced by a continuing larger population. We have found that the buildings continue to fill up.”
PMC has completed a downtown apartment building in Baltimore that Caplan says was leased at the quickest pace since he started working at the company in 1981. The building is expected to be fully leased in six months.
The demand is not just coming from millennials. In Milwaukee, for example, baby boomers are leaving the suburbs for downtown as the values of their suburban homes fully recover from the housing crash, Barry Mandel, president of multifamily developer Mandel Group, told CNBC. Some baby boomers are opting to purchase condos while others rent.
Older buyers are also prompting more construction of urban enclaves within suburban developments, known as “nodes.” The developments often feature retail and restaurants within walking distance of homes. Mandel notes that buyers 40 and older are showing particular demand for nodes.
Carl Dranoff, developer of Philadelphia’s One Riverside building, says that while boomers may be willing to move to city apartments, they still desire space. One Riverside originally had 82 apartments slated for the 22-story building. That has been reduced to 68 in order to add more space to units.
Also, the cost of city living isn’t cheap. One Riverside is leasing 1,000- to 1,100-square-foot apartments for $1.5 million to $2 million. A 2,500-square-foot unit costs between $2.5 million and $2.8 million.
Skyrocketing rental costs in the city are causing an affordability problem, says Rick Sauer, the executive director of the Philadelphia Association of Community Development Corporations, an organization that advocates for affordable housing.
“There is a larger impact on the overall cost of housing in the city,” Sauer says. “While there’s new housing stock being created on the high end in particular to respond to the demand, what you are seeing overall is that housing costs in the city are going up very significantly.”
Source: “Developers Lure Buyers to Cities, Even as Prices Stall,” CNBC (June 7, 2017)
