Kensington: The Economics of Property Development Eliminates Many Residents
Nick Huynh, 43, is the quadrilingual broker of record for Nick’s Real Estate, located at 1905 E. Allegheny Ave. Nick’s Real Estate has listings for dozens of properties, and its motto is, “We’ll sell it, or we’ll buy it!”
The values of properties in Kensington nearly doubled in 2006 and reached their peak in 2010. Since then, “prices have been holding in a declining trend,” Huynh said.
This decline is due to the combined influence of numerous factors from the post-2008 economic collapse. The number of buyers have plummeted, the number of available homes have increased and the lender qualifications have raised considerably which depresses levels of homeownership.
Since the collapse of the housing market, the dramatic increase in the number of foreclosed properties has flooded Kensington in particular with new available properties. Additionally, many owners and investors have been more eager to rid themselves of properties. What was once a smart investment has now become a burden due to the insecurity of the properties market.
Also due to the insecurity of the housing market, lenders have increased their restrictions and added more qualifications to being approved for a loan. The credit score requirement has gone up considerably, and many lenders require proof and approval of employment. According to the 2010 Census, 21 percent of Kensington’s population is unemployed and a massive 49 percent is out of the labor force. This presents a huge problem for the potential homebuyers in the area.
In both Kensington and across the nation, several factors have decreased the willingness, desire and ability of prospective homebuyers to actually make a purchase. Combined, these factors have “cut the number of buyers in half,” Huynh said.
Despite these factors, or perhaps because of them, “the quality of buyer is improving,” Huynh said. The days of government-supported and subsidized home-buying “are long-gone,” Huynh said. The government programs haven’t disappeared, but “lenders have tightened up their restrictions substantially,” Huynh said.
The result of the restrictions are an improved though relatively small population of potential buyers in the neighborhood. Past predatory lending practices, of which the poor and low-income populations have suffered the most, have done well to convince lenders of the financial dangers and unsustainability of lending to low-income families. According to the 2010 Census, 54 percent of Kensington residents are living below the poverty line which is double Philadelphia’s city-wide average.
“It’s getting tougher for [low-income families] to own properties,” Huynh said.
After the real estate bubble burst, banks and lenders became “leery and worrisome, which makes our job as agents much harder,” Huynh said. Huynh believes the unwillingness to lend to local residents is too strict compared to the old standard. However, he has enough experiences in floating the cost of less-than-ideal customers to understand the positions of wary lenders.
One such customer came to Huynh’s agency with a poor credit score. Instead of turning her away, Huynh said he “took a chance” and regretted it. After a few months, the woman defaulted on her loan.
What baffled Huynh was that “there were two flat-screen TVs [in the home] and yet they were unable to make the loan payments,” Huynh said.
This lending leeriness also directly impacts those in the market to purchase a home or at least use a property as a long-term investment. The inability to acquire a loan forces people to rent. Huynh said he believes this “provides little incentive for them to invest or improve their area.” Although this is not the case for all renters, it is a definite problem because more than half of the neighborhood’s population lives in rental properties.
Despite the difficulties faced by individual homebuyers, it seems as though real estate developers will always be there to either support or exploit a community.
“A lot of people got hurt buying real estate,” said Aaron Smith, 27, real estate developer for MMPartners, LLC. “But if you buy where your starting point is low but the neighborhood is on the rise, that’s how you make money. That’s how to create worth.”
But a developer like Smith is not necessarily snatching up properties and forcing the original community out. Community members are able to turn to real estate companies and developers in order to sell their homes, presuming that in hard economic times an agency can be more reliably counted on to purchase their property.
Smith also said he believes renting isn’t actually such a bad thing. “If you own a home, you’re more likely to be stakeholder in the community, but it doesn’t necessarily mean that you’re going to care,” said Smith, who primarily rents properties.
“Having a community of homeowners doesn’t necessarily guarantee that that community will be better than a community of renters,” Smith said. “I think it depends more on your social consciousness or if you care enough about how your neighborhood looks.”
And from the perspective of a developer, especially one that primarily rents like Smith, the collapse of the housing market was actually a good thing.
The crash certainly ruined many, but it also forced the grossly inflated, bubble-induced property prices back down to more reasonable levels. For developers and those that rent from them, the decrease in prices actually helped. “When the market crashed, things came back to earth,” Smith said.
Paying less for a property affects the entire cost chain: initial purchase, operating costs and overheads shrink, so a developer is able to charge less for rent, thus increasing the likelihood that the property will be rented, especially in the case of low-income renters.
“If you’re buying a house for 30 and putting 90 into it, you’re all-in for just 120, 125 after everything’s said and done,” Smith said, “and your carrying cost is 500, 600 bucks a month, you don’t have to charge $15,000 just to float the house.”
Whether residents are buying or renting, Smith said he believes the key is removing blight. “In many cases, members of the community are more concerned with removing blight rather than a big developer coming into their area,” Smith said.
As a developer, Smith realizes there are different types of development that can help address blight but sometimes they can have a negative impact on a community.
“Developers tend to erase the previous community,” said Smith, who used his own neighborhood, Northern Liberties, as an example of an erased community. However, Smith said he believes “developers have a social responsibility to the neighborhoods in which they develop.”
In Kensington, there are no developers accepting this social responsibility but there are organizations willing to help residents at least have a place to eat and sleep.
St. Francis Inn Provides Alternatives for Residents Seeking Homeownership
For another story on Kensington, visit Kensington: Economics of a Fractured Community.