My preferred approach to reducing high construction costs in Philly would involve relaxing anti-density zoning regulations, allowing more as-of-right development, and taxing land instead of buildings. But people should be aware that construction costs are crazy high, in part because of labor costs, and there’s a trade-off there with keeping housing affordable.
“Philadelphia has the fourth highest construction costs in the nation, about 20 percent higher than the national average. There’s nothing wrong with that, per se, if you have high house prices, high rents and incomes to cover that,” said Gillen. But Philadelphia’s rents and incomes are more in line with places like St. Louis and Cleveland. “I like to say we have Manhattan building costs with Baltimore rents,” he added.
Gillen says that part of these costs are related to Philadelphia’s taxes and governmental inefficiency, but that labor premiums for city unions alone pushed construction projects to the suburbs. “The difference between building in the city and the suburbs is a 20 percent premium on union labor costs. You cross City Line Avenue and your costs go down 20 percent,” he said.
The political issue here is concentrated benefits vs. broad-based benefits. You could make an argument that higher wages for construction workers have spillover effects, as people spend that money elsewhere in the city economy. But could we expect even larger spillover effects if rents dropped across the board and all housing consumers had more money to spend on non-housing goods and services?