“Construction costs in Philadelphia, all in, start at about $180 or $200 a [square] foot,” says Philadelphia economist Kevin Gillen, vice president of Econsult. “The median house price in Philadelphia is about $110 a foot. So you lose 60 to 80 bucks a foot on the average Philadelphia home.”
Indeed, Philadelphia has the fourth-highest construction costs of any major city in the nation — largely driven by the high cost of union labor. According to a joint report by FixItPhilly and the Building Industry Association of Philadelphia, labor makes up 45 percent to 60 percent of a project’s cost — 39 percent more than the national average. Combined with the city’s low home prices — $142,000 for a new home versus the national average of $179,600 — it is next to impossible to make a profit in many of the city’s neighborhoods.
This is why, according to Gillen, that while the 10-year tax abatement helped bring about “the biggest home-building boom in Philadelphia since the immediate postwar years after World War II,” only a little more than 11,000 new units were added to a housing stock of about 560,000 units. “Specifically, the people who it hurts are actually lower-income and working-class households,” says Gillen. “Because construction costs are so high, when development does happen, it’s overwhelmingly at the other end of the market.”