Philadelphia story — Compact, mixed-income areas weather housing crash
Low-density suburbs underperform in the downturn — and low-income city neighborhoods also suffer. The overall pattern is reversed from the early 90s recession.
Houses in cities, closer to downtown, have generally performed better than those in the far suburbs in the current housing crash, according to many reports in recent years. Yet some city neighborhoods have fared poorly — and some suburban neighborhoods have done well.
Now a study of the Philadelphia region looks at reasons for that variability — and finds new urban characteristics play a role. When suburbs have higher density and mixed-use they tended to perform relatively well. In this extensive analysis of sales in 340 zip codes by Kevin Gillen, an economist and senior research consultant at the University of Pennsylvania’s Fels Institute, the worst performing zip codes tended to consist of exclusively low-density dwellings. Conversely, city neighborhoods lacking income diversity also performed poorly.
Although all zip codes saw declines from 2007 to the market trough in early 2012, those in Center City, Philadelphia, declined as little as 1.9 percent in one case and 20 percent on average — less than the regional average. That’s despite the fact that this area saw the greatest increase in supply in the form of new condominiums, Gillen says, which should have depressed prices.
Mixed-use, walkable, suburbs also declined an average of 20 percent. The average house price in the region went down 26 percent. Typical non-new urbanist communities declined 35 percent. Areas that were extremely sprawling declined as much as 49 percent, according to the report, The Correlates of House Price Changes With Design, Density and Use: Evidence From Philadelphia.
Underperforming city neighborhoods
Some city neighborhoods also saw large price declines, especially those inhabited mostly by poor people with a high numbers of vacant properties and low incomes. Although these neighborhoods in north and west Philadelphia have a walkable infrastructure in the form of small blocks and sidewalks, they lack the same degree of mixed-use as better-performing neighborhoods. Vacant properties affect “eyes on the street,” the crucial quality identified by Jane Jacabs for a healthy urban place. The fact that some of these neighborhoods that have declined greatly in value and have very low prices per square foot are close to the region’s best performing places could indicate investment opportunities — and possible gentrification — in coming decades.
In both inner-city areas and distant suburbs the health and quality of the neighborhood were the determining factors in real estate performance.
Gillen compared the recent housing downturn to that of 1989-1995, and found the pattern reversed. Two decades ago, “house prices declined the greatest in the core urban center (33.7 percent in Center City), second-most in the central city of Philadelphia as a whole (17.6 percent) and the least in the lower- density areas the suburban counties (14.3 percent). But, during the most recent housing downturn of 2007-2012, home price declines have been greatest in the relatively low-density suburbs (32.7 percent), second-most in Philadelphia county (26.7 percent) and the smallest in the urban core of Center City (20.2 percent).”
Thus, “not only is the magnitude of the recent housing downturn unique, but its structure is as well,” he says. Gillen theorizes that energy costs, which rose significantly over the last decade and a half, are partly to blame, “thus making long commutes in a car and heating and cooling a larger suburban home relatively more expensive.” Plus, lower crime and improved quality of life have made older, walkable neighborhoods more attractive. Finally, he says, shifts in consumer preference and interest in urban living have played a role.
Gillen’s findings support those of Christopher Leinberger in the Washington, DC, area — Leinberger found that mixed-use, walkable places with significant commercial development are performing much better than the DC region as a whole.
The Congress for the New Urbanism commissioned Gillen’s study.
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