‘A chain of dominos’: Philly luxury home sales remain on the rise amid affordability crisis

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New data shows a surge in the share of luxury home sales in the Philadelphia region, an unusual trendline that economists say could raise prices up and down the housing market amid an affordability crisis.

Over the last five years, the volume of homes that sold for $1 million or more has exploded by nearly 500%, according to a recent report from the Lindy Institute for Urban Innovation at Drexel University. During the same stretch, the median home price in the region — which includes Philadelphia, the surrounding suburbs and parts of New Jersey and Delaware — increased by about 50%.

Kevin Gillen, a senior research fellow at Lindy, said this “mini bubble” is concerning for first-time homebuyers, sellers looking to upgrade and existing homeowners seeking to downsize to a condo, particularly in the Philadelphia suburbs.

“The housing market metaphorically is like a chain of dominoes,” Gillen said. “If I jam up the domino at the very end of the chain, it can jam up the whole chain.”

In Philadelphia, the jump in luxury home sales could “exacerbate” gentrification — if asking prices in desirable neighborhoods increase to a point where they’re driving away homebuyers who historically could have afforded the area, he added.

That could send those homebuyers to more affordable communities, potentially inflating property taxes in those neighborhoods and putting longtime residents at risk of displacement.

“Which is regressive,” Gillen said. “It falls disproportionately not only on low-income people, but minorities as well and on the neighborhood that they have historically occupied.”

It’s not completely clear what’s been driving this trend, but the data shows no signs of the trend ending anytime soon.

Gillen attributes some of the surge to transplants from New York and Washington, D.C., who have moved here but kept their jobs in those cities. Homeowners looking to upgrade after their property values skyrocketed during the COVID-19 pandemic are also playing a part, he said.

“It started because of the influx of expatriates from other cities,” Gillen said, “but it’s become its own thing being driven internally now.”

The report comes as Mayor Cherelle Parker’s administration prepares to launch its signature housing initiative, a $2 billion effort designed to preserve and create 30,000 units of housing through a variety of programs, including ones aimed at helping low- to middle-income residents stay in their homes and renters to move into homeownership.

Jessie Lawrence, director of the city’s Department of Planning and Development, said he doesn’t find the data from Drexel alarming, and that the administration is committed to creating “opportunity for all” — from people experiencing homelessness to people who can afford to buy a $1 million home.

The report, he said, does help reinforce the need for government to invest in programs that create and maintain affordability in the city, which remains one of the poorest big cities in the country.

“A competitive market is a healthy market, right? But I think we also recognize that there are parts that we need to interfere in and intervene and insert ourselves in the process,” Lawrence said.

The Housing Opportunities Made Easy, or H.O.M.E., initiative will be backed by $800 million in bonds, an unprecedented investment in housing. The effort’s first program statement and budget is expected to be transmitted to Council for introduction and passage sometime this fall.