Leading Indicators

Inside Philadelphia’s Imminent Construction Boom

With increased permitting for new development in Philadelphia, it seems likely that the city will experience a construction boom in the next few years. In this Leading Indicator, we dive deeper into the city’s recent building permit records to analyze and map concentrations of new construction permitting activity.

 

What You Need to Know

  • In 2019, nearly 64,000 building permits were issued in the City of Philadelphia, the largest number in the past six years and almost 5,000 more than the second highest count in 2018.

  • Though the COVID-19 pandemic slowed permitting and construction, the number of new construction building permits in Philadelphia in 2020 and 2021 exceeded permit counts from 2016 through 2018.

  • In 2020, Philadelphia saw the highest concentration of new construction permits in the past six years, at 26.4 percent.

  • At 20.3 percent, 2021 saw the second highest percentage of new construction permits issued in Philadelphia – a full year after the expiration of the original ten-year tax abatement.

  • While remaining relatively stable from January 2016 to January 2018, the number of new construction permits issued in Philadelphia increased nearly sixfold by January 2020 versus January 2016.

  • While plummeting in April 2020 to almost 20 percent below January 2016 issuances, new construction permits in Philadelphia significantly recovered by July 2020.

  • December 2021 saw the second highest count of issued new construction permits in Philadelphia since January 2016.

  • Mapping density clusters of new construction permits in Philadelphia from 2018 to 2021 shows that neighborhoods surrounding Greater Center City, such as Kensington, Brewerytown, and Point Breeze, have seen consistent new construction permitting and speculation in the past four years.

  • In general, the highest numbers of new construction permits are being issued in the city’s gentrifying neighborhoods as well as adjacent neighborhoods.

  • However, the distribution of permits is highly uneven, with most of North Philadelphia, as well as the Northeast, Southwest, and far West sections of the city, seeing little to no new construction permits in the past four years.

 

A Philly Construction Boom?

There is growing evidence that the City of Philadelphia will see increased construction activity in the next few years [1,2,3]. Various reports indicate higher volumes of building permit applications in the last two years preceding the 2021 expiration of the city’s ten-year tax abatement [1,2]. To examine these trends, we took a closer look at the city’s building permit data – with particular attention to new construction permits. Figure 1 shows the total count of building permits issued per year in the City of Philadelphia from January 1, 2016 to February 15, 2022. It separates the share of new construction permits in orange.

 

FIGURE 1 

SOURCE: City of Philadelphia’s Department of Licenses and Inspections

NOTE: New construction permits were identified based on the type of work described within the administrative records and checked across listed permit types. Building permits in 2022 represent all issued permits between Janaury 1, 2022 to February 15, 2022.

 

Building permits are a robust proxy of development activity in a municipality. Most new construction, demolition, alteration, renovation, or use or zoning changes to a property require proper authorization and approval from local government. Once approved, the permit is made publicly available to inform the public that the outlined property changes are legally authorized and to provide a mandatory timeframe for project completion – after which a developer will need to apply for another permit. While a permit does not guarantee that a property change will occur – many permits are more administrative in nature, such as certificates of occupancy or changes to a zoning classification, and sometimes physical development cannot occur due to extenuating circumstances – but they remain a reliable metric for understanding local development speculation patterns.

 

Figure 1 shows that building permit issuances were significantly increasing prior to the COVID-19 pandemic. In 2019, nearly 64,000 building permits were issued in the City of Philadelphia: the largest number in the prior six years and almost 5,000 more than the second highest count in 2018. The pandemic slowed permitting and construction activity due to a combination of the Commonwealth of Pennsylvania’s mandatory construction halt in the spring of 2020, supply chain disruptions, and sharp increases in prices for construction materials [4,5]. However, even with the overall decline in permitting and construction, 2020 and 2021 saw extremely high counts of new construction permits. In fact, in 2020, 26.4 percent of permits were issued for new construction – the highest percentage in the previous six years. While this may reflect a final push from developers trying to acquire permits before the city’s expiration of the ten-year tax abatement, 2021 – a full year after the expiration of the abatement— saw issuance of the second highest proportion of new construction permits in the previous six years, at 20.3 percent. This trend is continuing into 2022: thus far, agencies are reporting a higher percentage of new construction building permits in 2022 than from 2016 through 2018. In short, even after the repeal of the ten-year tax abatement, new construction permit issuance continues unimpeded.

 

New Construction Trends

Tracking new construction building permits offers insights into a city’s development patterns. In an older city with a mature building stock like Philadelphia, new construction signals potential changes to the urban landscape with new buildings and infrastructure. New construction permits serve as a reliable proxy for the overall desire for and profitability of development projects. Figure 2 tracks the monthly indexed growth of new construction building permits in Philadelphia from January 2016 to January 2022.

 

FIGURE 2 

SOURCE: City of Philadelphia’s Department of Licenses and Inspections

NOTE: New construction permits were identified based on the type of work described within the administrative records and checked across listed permit types.

 

Like figure 1, figure 2 shows that new construction building permits were rising significantly just prior to the pandemic. While remaining relatively stable from January 2016 to January 2018, the number of new construction permits issued in Philadelphia increased nearly sixfold by January 2020 versus January 2016. As noted, the increased fervor in 2019 likely reflects concerted efforts on the part of developers to get permits in hand prior to the expiration of the tax abatement, which was originally set to expire on July 1, 2020 but was extended through January 1, 2021 because of the pandemic [6]. As new policy solutions were debated in 2019, developers and builders quickly applied for permits to take advantage of the abatement before it was altered or repealed.

 

The first few weeks of the COVID-19 pandemic dealt a serious blow to permitting and construction. In April 2020, the number of new construction permits issued had plummeted to almost 20 percent lower than in January 2016. (This decrease also likely reflects the limited ability of city officials to process permits in the wake of work-from-home mandates during lockdowns.) New construction permits recovered from May to July 2020 with the steep inclines reflecting the city’s approval of backlogged permit applications. From July 2020 through most of 2021, new construction permits remained relatively steady but saw a significant spike in December 2021.

 

Location, Location, Location

Figure 3 maps new construction permits in Philadelphia by parcel from 2018 to 2021. While the top map shows a heatmap cluster of dummy-coded permits per parcel (that reformats as you zoom in and out), the bottom synced map normalizes the permitted parcels by the total number of parcels within their corresponding census tract. This illustrates both the raw clustering of new construction permits per parcel as well as accounting for the density of parcels in certain neighborhoods.

 

FIGURE 3 

SOURCE: City of Philadelphia’s Department of Licenses and Inspections

NOTE: New construction permits were identified based on the type of work described within the administrative records and checked across listed permit types. Some percentage of new construction permits (<1%) could not be directly attributed to a parcel but could be attributed to a census tract.

 

Figure 3 further illustrates the absolute increase of new construction permits from 2018 to 2019, followed by a slight decline after the COVID-19 pandemic. Each map shows some consistent clusters of new construction permit activity throughout the four years. The normalized census tract map also confirms that many of these clusters were within census tracts that saw significant numbers of new construction permits, when normalized by total parcel estimates.

 

The North Philadelphia neighborhoods of Ludlow, Olde Kensington, Kensington, East Kensington, Brewerytown, and North Central, as well as the South Philadelphia neighborhoods of Grays Ferry, Point Breeze, and Wharton, all saw consistent clustering of new construction permits from 2018 to 2021. In West Philadelphia, sporadic clustering of new construction permits occurs around Walnut Hill, Cedar Park, and Garden Court, but a much larger cluster intensifies and coalesces around Mantua after 2018. Center City West sees some significant new construction clustering in 2019 and 2020, but it slightly dissipates by 2021. Northwest Philadelphia sees most of its new construction permits in 2019; these clusters are most intense in Manayunk, Ivy Ridge, and Germantown.

 

Many of these new construction permit clusters align with neighborhoods undergoing gentrification, that is, areas characterized by a relatively rapid influx of persons with higher socioeconomic status than the norm. While the issuance of a permit does not necessarily or always lead to physical development, clustering signifies where developers believe the most lucrative new construction markets are in the city. This clustering itself may serve as a market signal that helps expand gentrification in the city. The creation of the next “hot” neighborhood with new homes and businesses attracts an influx of nearby gentrifiers willing and able to pay prices well beyond the norm, driving up property values (and developer profits), and risking the displacement of lower-income residents – particularly low-income renters [7].

 

Uneven Development

While figure 3 shows intense clusters in many central and gentrifying neighborhoods, it also shows vast pockets with little to no new construction permits. Much of North Philadelphia, as well as the neighborhoods in Northeast, Southwest, and far West Philadelphia, saw little to no new construction activity during the past four years. To further understand the differences in development patterns, figure 4 syncs the normalized new construction permit map from figure 3 with a map detailing socioeconomic and demographic estimates from the U.S. Census Bureau’s 2019 American Community Survey.

 

FIGURE 4 

SOURCE: City of Philadelphia’s Department of Licenses and Inspections and five-year estimates of the U.S. Census Bureau’s 2019 American Community Survey.

NOTE: New construction permits were identified based on the type of work described within the administrative records and checked across listed permit types. Some percentage of new construction permits (<1%) could not be directly attributed to a parcel but could be attributed to a census tract.

 

Figure 4 further demonstrates that new construction permitting is highly concentrated in the city’s whiter, higher-income, and lower-poverty neighborhoods. Many of the city’s predominantly non-white and poorer neighborhoods see little new construction permitting.

 

However, when a predominantly non-white and poorer census tract reports higher density of new construction permits, it is nearly always adjacent to census tracts with majority white or diverse residential populations with higher income estimates. Neighborhoods like Ludlow, Hartranft, Callowhill, Point Breeze, Grays Ferry, and Wharton are predominantly non-white and relatively low-income but border gentrifying, or gentrified, neighborhoods. New construction permitting is increasing in these “border tracts” as developers and investors bet that gentrification will spillover. By examining the median household income and poverty levels of these border areas over time, early signs of the influx of middle-class populations is evident. From the perspective of inclusive and equitable growth, it remains to be seen if the city’s policy toolkit is sufficient to avoid displacement of lower income residents as rents and property taxes face upward pressure. 

 

Works Cited

[1] Rothstein, Matthew. 2022. “'Absurd': Philly Permitted More Housing Units Than New York City In 2021.” Bisnow, 16 February. Retrieved from: (https://www.bisnow.com/philadelphia/news/construction-development/philadelphia-construction-boom-2021-tax-abatement-111874).

 

[2] Kosteini, Natalie. 2022. “22 PROJECTS TO WATCH: Billions of dollars flood into a cross section of new developments.” Philadelphia Business Journal, 29 January. Retrieved from: (https://www.bizjournals.com/philadelphia/news/2022/01/29/projects-to-watch-in-2022.html).

 

[3] Center City District. 2022. The Center Holds: Residential Resiliency 2022. Philadelphia, PA: Center City District & Central Philadelphia Development Corporation. Retrieved from: (https://centercityphila.org/research-reports/report-the-center-holds-residential-resiliency-2022).

 

[4] Bond, Michaelle. 2020. “Pa. construction sites can reopen May 1. What will that look like?” The Philadelphia Inquirer, 24 April. Retrieved from: (https://www.inquirer.com/real-estate/coronavirus-construction-reopen-pennsylvania-safety-20200424.html).

 

[5] Englesbe, Greg. 2022. “Supply-chain issues delay homebuilders on cusp of spring real estate market.” Philly Voice, 18 February. Retrieved from: (https://www.phillyvoice.com/greg-englesbe-real-estate-supply-chain-issues-delay-homebuilders-spring-real-estate-market-0599945/).

 

[6] Klyashtorny, Natalie. 2020. “Dramatic Changes To Real Estate Tax Abatement Program And New Construction Tax In Philadelphia.” Nochumson, 11 December. Retrieved from: (https://nochumson.com/tax-abatement-program-and-new-construction-tax/).

 

[7] Smith, Neil. 1987. “Gentrification and the Rent Gap.” Annals of the Association of American Geographers, 77(3): 462-465. Retrieved from: (https://www.jstor.org/stable/2563279).