Leading Indicators

Philadelphia's Construction Restart During the Pandemic

Prior to the COVID-19 pandemic, the City of Philadelphia was in the midst of a construction boom. However, with Governor Wolf’s March 20 order to shut down most construction sites in Pennsylvania, the bulk of the city’s construction activity ground to a halt. This had serious implications for construction firms, employees, and the local economy. Now that construction has resumed (with restrictions) as of May 1, we decided to take a closer look at the city’s construction industry and quantify the economic impact of the six-week shutdown.

 

Key Takeaways

  • Measured by the quantity of building permits issued, Philadelphia saw a 7.6 percent annual growth rate in construction activity from 2009 to 2019; there were more than double the number of permits issued in 2018 than in 2009.

  • In 2018, employment in Philadelphia’s construction industry reached a decade high of 12,012 private salaried jobs – a 24 percent increase since 2009.

  • Philadelphia’s construction industry is both ethnically and racially diverse with Latinx/Hispanic workers accounting for approximately 32 percent of the labor force and Black/African American workers accounting for 19 percent.

  • With the mandated shutdown, the number of permits issued in April 2020 was 90 percent lower than April 2019; a commensurate decrease across all permits and fees issued by the Department of Licenses and Inspection would translate to a $6.6 million loss in revenue for the City.

 

A Post-Recession Construction Boom

Following the 2007-2009 Great Recession, construction activity in Philadelphia reached an all-time high. The City of Philadelphia’s Department of Licenses and Inspections reported that more building permits were issued in 2018 than any year since digital collection began. Figure 1 illustrates this post-recession construction boom using the count of standard new construction, demolition, alterations, and additions building permits recorded from 2007 to 2019 in the city. From 2009 to 2019, the city saw a 7.6 percent annual growth rate in standard building permits, with 2018 accounting for more than double the number of permits in 2009. This boom was largely the result of returning middle-class populations to inner city neighborhoods after decades of “white flight” to the suburbs. As a result, real estate speculation and construction increased (along with gentrification) for many of Philadelphia’s neighborhoods.

 

FIGURE 1

NOTE: Data for this graph were obtained from the City of Philadelphia’s Licenses and Inspections Building and Zoning Permits dataset which is maintained on OpenDataPhilly by the Department of Licenses and Inspections. The count of annual building permits only includes “standard” new construction, demolition, alterations, and additions permits that were listed as “issued,” “active,” or “completed.”

 

The growth in construction activity was coupled with a growth in jobs. In 2018, employment in the city’s construction industry reached a decade high of 12,012 private salaried jobs – a 24 percent increase since 2009 [1]. This volume of employment in the city’s construction industry had not been seen since before the Great Recession. Employment in this industry comprises occupations at varied skill levels that include carpenters, electricians, insulation workers, masons, roofers, painters, plumbers, and others. Many of these occupations have lower entry-level requirements and offer sustainable career pathways that allow workers of all skill-levels to progress to higher salary-levels. Thus, the post-recession increase in construction jobs also increased some opportunity for wealth creation among a few of the city’s lower-income households.

 

Recent U.S. Census data show how the city’s construction industry is also ethnically and racially diverse. Figure 2 shows the racial and ethnic composition of Construction and Extraction salaried employment for Philadelphia and Pennsylvania from 2012 to 2018. Philadelphia’s Black/African American and Latinx/Hispanic representation in construction far outpaced Pennsylvania’s estimates from 2012 to 2018. In fact, in 2018, Latinx/Hispanic representation in Philadelphia’s construction industry was four times that of the state.

 

FIGURE 2

NOTE: Data were obtained from one-year estimates of the U.S. Census Bureau’s American Community Survey. The construction workforce is operationalized as any resident in the geographic area employed in a “Construction and Extraction” Occupation.

 

Yet, even with its marked diversity in employment, Philadelphia’s construction industry has a long history of excluding minority- and women-owned firms from both participating in trade organizations and bidding on larger capital projects [2]. While some industry leaders have set out to address these equity concerns in the city’s real estate and construction industries, many still fall into the fold of inequity [3]. The post-recession boom may have expanded opportunity and employment options, but structural inequalities persisted.

 

A Halt to Construction

On March 20, 2020, Pennsylvania’s Governor Tom Wolf’s order shutting down large swaths of the state’s economy to stop the spread of the COVID-19 virus included non-emergency-related construction activity [4]. This order halted construction activity in the city and left many workers financially strapped as many construction firms laid off employees. Although unemployment counts for this sector are still being determined, the construction industry accounted for 7.6 percent of Philadelphia’s total initial unemployment claims in March 2020 [5], and the Philadelphia Building Trades Council reported a 60 percent unemployment rate for their members as of April [6].

 

The city also saw a loss in revenue as a result of the construction halt. City coffers take in substantial fees from permits, licenses, and inspections issued for construction projects. Figure 3 illustrates the significant decline in permits by comparing the raw number of weekly standard building permits issued from January 1 to May 6 in 2018, 2019, and 2020. As the pandemic intensified by mid-March of 2020, standard building permits in Philadelphia plummeted. In fact, the number of permits issued in April 2020 was 90 percent lower than April 2019. If this trend was consistent across all permits, licenses, and inspections fees issued by the Department of Licenses and Inspections, the city would stand to lose roughly $6.6 million dollars based on April 2019 estimates.

 

FIGURE 3

NOTE: Data for this graph were obtained from the City of Philadelphia’s Licenses and Inspections Building and Zoning Permits dataset which is maintained on OpenDataPhilly by the Department of Licenses and Inspections. The count of annual building permits only includes “standard” new construction, demolition, alterations, and additions permits that were listed as “issued,” “active,” or “completed.” Additionally, the weekly count of permits for April 29 to May 6 does not account for the full week since the data have not been updated at the time of writing.

 

The Great Reboot

The reopening of the city’s construction activity on May 1, 2020 came with restrictions, but it may be a sign that the local economy will be able to bounce back from this pandemic. In a recent report, Lara Rhame, Chief U.S. Economist at FS Investments outlined three possible scenarios for a “reboot” of the national economy following the pandemic. These scenarios hypothesize that the economy will “reopen” either in late May, July, or mid-Autumn – depending on virus incidents rates and possible resurgences. Regardless of the timeline, Rhame contends that the economy will eventually recover, but the losses of 2020 may not be recuperated for some time. This macro perspective applies to Philadelphia’s construction industry. This industry faced similar circumstances only ten years ago and bounced back. The previous bounce back was the result of a return-to-city movement by many middle-class professionals and Millennials. Following this pandemic, the industry will need another impetus to push construction activity back to pre-pandemic levels. Yet recovery in the aftermath of a pandemic is far more complex than after a finance-induced recession; many questions remain about the prospects for tourism and hospitality which are major drivers of large construction projects in the city. The fundamentals of the U.S. economy in general—and Philadelphia’s in particular—were relatively strong prior to the pandemic (though there has long been major equity issues). This gives reason to be cautiously optimistic that the city’s construction industry will recover as it did after the 2007-2009 Great Recession – it will take some time.

 

Works Cited

[1] Bureau of Labor Statistics, U.S. Department of Labor. 2019. “Series ENU4210110523, All Employees in Private NAICS 23 Construction for All establishment sizes in Philadelphia County, Pennsylvania, NSA.” Quarterly Census of Employment and Wages. Retrieved from: (https://www.bls.gov/data/).

 

[2] McGinnuis, James. 2019. “City’s lack of diversity in building trades persists.” The Philadelphia Tribine, April 7. Retrieved from: (https://www.phillytrib.com/news/local_news/city-s-lack-of-diversity-in-building-trades-persists/article_63b94eb0-7263-5010-a99f-17f24cd550bd.html).

 

[3] Stoddart, Blane F. 2020. “7 ways to solve Philly’s #ConstructionSoWhite problem.” Plan Philly, February 13. Retrieved from: (https://whyy.org/articles/7-ways-to-solve-phillys-constructionsowhite-problem/?utm_source=dlvr.it&utm_medium=twitter).

 

[4] Bond, Michelle. 2020. “Philadelphia will allow construction to resume Friday — with some limitations.” The Philadelphia Inquirer, April 29. Retrieved from: (https://www.inquirer.com/real-estate/construction-reopen-philadelphia-kenney-coronavirus-pennsylvania-20200429.html).

 

[5] Center for Workforce Information & Analysis, PA Department of Labor & Industry. 2020. “Pennsylvania Regular UC Benefits - March 2020.” Retrieved from: (https://www.workstats.dli.pa.gov/Products/Pages/Products%20By%20Geography.aspx).

 

[6] Blumgart, Jake. 2020. “‘Not gonna break my bank’: Developers say coronavirus won’t end Philly’s real estate boom.” Plan Philly, April 1. Retrieved from: (https://whyy.org/articles/not-gonna-break-my-bank-developers-say-coronavirus-wont-end-phillys-real-estate-boom/).