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Despite a recent deceleration in rents, economist Kevin Gillen remains bullish about Philadelphia's residential real estate market. Gillen, a Senior Research Fellow at Drexel's Lindy Institute for Urban Innovation and Senior Economic Advisor to Houwzer, Inc., gave an overview of Philadelphia real estate trends at a recent Development Workshop meeting.

Although he projects that a recent softening of the rental market will continue, Gillen attributes this to new supply coming online and calls it a normal development for this point in the real estate cycle.

Meanwhile, a significant shortage of single-family homes available for sale is continuing to drive house prices higher - by an average of 10 percent annually. And the number of home sales topping $1 million has reached an all-time high.

Philadelphia has also been seeing growth in its condo market. Though average condo prices have yet to fully recover from the recession, the number of condos sold at prices $1 million or higher is also at an all-time high as the Center City market continues to show substantial strength.

Despite the burgeoning residential real estate market, Gillen raised several potential policy challenges going forward that could curtail growth, as well as a growing housing shortage that is impacting affordability.

He also pointed out the poverty problem confronting Philadelphia, which has the largest percentage of families living below the poverty line of any major American city.

While real estate trends are moving in the right direction, Philadelphia still saw fewer than 45 sales of $1 million homes last quarter – an indication that the city is not confronting the same sorts of affordability issues being faced by places like San Francisco and New York.

Substantial additional regulatory burdens, including reducing the 10-year tax abatement, could severely curtail growth.

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