Demand is high for rental units

The Bozzuto Group's West Chester units. Affordable rental housing is hard to find.
The Bozzuto Group's West Chester units. Affordable rental housing is hard to find. (Ed HIlle / Staff)

After several slow years, apartment construction is picking up across the region.

Posted: October 07, 2012

Apartments continue to do a brisk business both locally and across the country, and rents continue to rise even as home sales begin to pick up.

"Household formation is reviving, despite sluggish employment growth, and the recovery in demand is spreading from rental units to the owner-occupied sector," said economist Nigel Gault of IHS Global Insight in Lexington, Mass.

After years of construction drought, the Philadelphia suburbs are having an uptick in new rental projects. In Center City, where building activity has been a more familiar sight, several large projects are under way and others are in the planning-approval stage.

Ridge McLaren, who specializes in the sale of multifamily investment properties in the Philadelphia region for commercial real estate brokerage Marcus & Millichap, said 3,200 rental units were expected to be added to the Center City inventory by 2015, a 20 percent increase.

In addition, there are 1,067 units "in the ground and approved" in South Jersey and 2,500 in the Pennsylvania suburban counties around Philadelphia, McLaren said.

"Developers are focusing on Center City and transit-oriented, high-population areas in the suburbs" within commuting distance of Philadelphia and Wilmington, he said.

For example, Bozzuto Group of Greenbelt, Md., which has been in the area for several years as a developer and property manager, plans to build a total of 500 apartments, at a cost of $120 million, in Newtown Square and West Chester.

Pent-up demand is a prime mover, and "construction guys are out there looking for sites," McLaren said. "People are already worrying about overbuilding, [but] as long as the banks will lend, developers will take it and build."

The regional trends are being mirrored nationally. Lending for multifamily construction totaled $110 billion in 2011, 60 percent more than in 2010, the Mortgage Bankers Association said Thursday.

But the clamor for apartments here and elsewhere is putting ever-greater financial pressure on those already on the edge. Affordable rental housing is even harder to find and pay for, as recently released U.S. Census data and studies by advocacy organizations show.

Last month, the Census Bureau reported that about 20 million renter households across the United States, or 53 percent of the total number, faced a housing-cost burden in 2011. In other words, last year 600,000 more people paid 30 percent or more of their income toward rent and utility costs than did so in 2010.

In the Philadelphia area, households must earn $20.67 per hour, or $43,000 a year, to afford a two-bedroom apartment at what advocacy groups consider a fair-market rent of $1,075 a month, according to a 2012 study by the National Low Income Coalition and Housing Alliance.

Syreeta Johnson of Glenside left her post office job to go back to school to become a nurse. But due to a series of unfortunate circumstances, when she began her new career in December, she was woefully behind on her $960-a-month rent and working two jobs to make ends meet.

"The utilities can be a killer," said Johnson, who has four children, ages 12 years to four months, and who has been paying a $90-a-month penalty because she can't pay the rent on time.

Denise Parker of Penllyn, a single mother with four children from college to elementary-school age, lived in a shelter until three years ago, when she moved to Section 8 housing.

After being unemployed, then hospitalized for back surgery, Parker found a job as a hospital receptionist, but she doesn't make enough to pay $962-a-month rent and meet other expenses.

"Sometimes, you have to choose between heat and food for the kids," she said.

Liz Hersh, executive director of the Housing Alliance of Pennsylvania, said, "It can be an invisible problem to many, although teachers will tell you that children sometimes just disappear in the middle of the year as their parents face unstable housing situations and they have to move, or kids get sick from housing-related conditions.

"The basic issue is that wages have not kept pace with the cost of renting," Hersh said. "Jobs like day-care teachers, cashiers, home-health aides, and practical nurses just don't pay enough to pay the rent on a lot of places."

At the $20,000-a-year income level, there is a shortage of apartments that are affordable and available, Hersh said, and many of those are not good quality or are in places that are inaccessible to the good jobs and schools.

Though some parts of the suburbs, such as the Main Line, have become renter markets, in the sense that apartment-hunters can have their pick of units, more prospective tenants appear to have credit issues these days, said Helen Aster, president of Harrison Richards Inc., a property-management firm in Ardmore.

Still, Aster said, landlords are willing to compromise because many of these prospects end up being the kind of tenants they want to keep.

"The key is retention," she said, noting, for example, that her firm was sanding floors in an apartment to which she is moving a tenant in order to keep him.

There may be other locales with an oversupply of rentals - many units were built as condos and couldn't be sold. But the story regionwide, Marcus & Millichap's McLaren said, is that concessions such one month's free rent "have burned off, apartment fundamentals are stronger than 2005-06, and occupancy is 95 to 96 percent."

As the for-sale housing market stumbles back to health, the outlook for the multifamily segment looks like more of a sure thing, industry observers said.

And that, in itself, may spur development of more affordable housing in the region and ease the burden of renters.

The prolonged downturn could represent "a paradigm shift from single-family homes that people can no longer afford," McLaren said. "Apartments may be coming back."

Contact Alan J. Heavens at 215-854-2472, or follow @alheavens at Twitter.

comments powered by Disqus