Apartment Boom: Developers struggle to keep up with demand

The Lehigh Valley’s demographics are changing, and a growth in population and lifestyle needs has led to a boom in apartment construction – especially in urban centers, where developers can barely keep up with the demand. 

According to the Lehigh Valley Planning Commission, despite all the construction of new apartment buildings that have been completed in the past few years, and the large number of projects in the pipeline, there is still a housing deficit in the Lehigh Valley and it is impacting a wide range of populations. 

Census data shows that in Allentown alone the population grew by 8,000 people over the last 10 years. In the Lehigh Valley, population grew by more than 45,000, with another 40,000 predicted to move in over the next five years, according to developer J.B. Reilly of City Center Investment Corp. 

“When you look at the population growth trends, there’s a shortage of housing on all levels across the spectrum,” Reilly said. 

The Lehigh Valley Planning Commission recently put out a report showing a deficit of around 95,000 housing units in the region. 

The report showed that renters currently make up 86,000 households in the Lehigh Valley. That’s one out of three households and is a 7% increase since 2005 with a 2% increase between just 2018 and 2019. 

“Across the region, increasing social preference for rental over ownership mirrors national trends and is supported by the private sector’s increased focus on apartment construction – a change that’s been emerging in the Lehigh Valey since rebounding from the Great Recession,” the report said. 

City Center has been one of the most prolific developers of apartment buildings in recent years and has been behind much of the redevelopment work in the City of Allentown. 

So far, City Center has completed eight complexes in10 different buildings with 983 apartment units. 

Buildings include the 520 Lofts, Cityplace and the Center Square Lofts. 

It also has another two under construction that would add another 365 units, and another two in planning that would add 182 units. 

Peron Development of Bethlehem has been another major player in apartment construction. It opened two new upscale apartments in the Lehigh Valley in February, the 75-unit Armory in Bethlehem and the 67-unit Seville in Easton. 

John Callahan, business development director for Peron, and former mayor of Bethlehem, said those apartments are meeting a very specific demand for higher end apartment space.  

With rents as high as $2,700 per month, he said these apartments are targeted at people who can afford a mortgage payment but choose to live in an apartment instead. 

“These are discretionary renters. That’s the lifestyle they chose. It can be empty nesters and young professionals,” he said. “Our largest, most expensive units are the ones that are leasing first.” 

According to the Lehigh Valley Planning Commission there’s a shortage of more than 32,000 housing units for households with income over $100,000 per year. 

Callahan said the lack of high-end apartments has an impact across the entire rental ecosystem. 

When someone looking for a $2,500 per month apartment can’t find it, he said they often settle for an apartment that may rent for only $1,700 per month. 

That takes a unit off the market for someone that can only afford a $1,700 per month rent, but who doesn’t qualify for affordable housing, leaving them with few options. 

To illustrate the demand for these types of properties, Callahan noted that between when Peron opened the Seville Feb. 1 and Feb. 15 the building was already one-third leased and the Armory was more than half leased during that same timespan. 

Callahan said the other good that comes from these urban apartment buildings is that they are a part of a city’s redevelopment efforts. 

He noted that the Seville is expected to bring about 100 new residents to downtown Easton that are within walking distance of Centre Square businesses and those at the Easton Public Market. 

“That’s 100 new people that will be living and working in the city,” he said. 

He said the trend of people fleeing the cities for the suburbs that began in the 1970s is reversing and people are returning to live in the cities thanks to the availability of quality apartments. 

These are the people that are supporting downtown businesses and restaurants and are part of the urban centers’ rebirth. 

But developing such properties isn’t always easy, said Reilly. While City Center has been building urban apartments at a “fairly significant pace” for the past six years, there are challenges. 

“The challenge for developers and builders include land constraints and inflation. It’s become harder to flip the switch and ramp up construction to meet the demand,” he said. 

He said there are good opportunities for development, but money is a problem. 

“How can you affordably build these projects when rents are going up, but there have been double digit increases in construction costs and the rents are not going up as fast,” he said. 

Reilly said apartment rents are high – most urban apartment complexes charge more than $1,100 a month for even their smallest units – as there is a struggle to maintain affordability as the builders’ costs rise. 

He said because of the need to keep rent under control, such buildings are less profitable than they were a few years ago, which makes it more difficult for developers to get capital to build the apartment buildings and makes that money more expensive to borrow. 

The apartment buildings that are being built today are also more expensive to build because they are creating more of a lifestyle center than apartments built in the past. 

Reilly said people seeking apartment living want amenities beyond just a simple fitness center or community room. 

New apartments being built by City Center and Peron feature amenities from swimming pools to dog washes, fire pits grills and rooftop green spaces. 

“They want a communal experience,” Reilly said. “The downtown is becoming a more attractive place for living,” he said. 

The demand isn’t going away, and new apartment buildings will continue to be built in the Lehigh Valley’s urban spaces. 

But developers are already adapting to what the consumers want. 

For example, Peron is currently in development of the Confluence project in Easton.  

That project, off Larry Holmes drive, will have 264 total units with 43 of the units being two- and three-bedroom condos. 

Callahan said the change came from responses they’ve received from tenants and potential tenants that want the low-maintenance apartment lifestyle but want the equity that comes from owning versus renting a property. 

He expects to see more of that in future housing projects. 

“If you build the right type of product, people will respond,” Callahan said. 

He re-emphasized the importance of such projects that developers like City Center and Peron bring to the Lehigh Valley, besides providing needed housing. 

“The more we can do to bring people back into the city, the more we can do to protect the green fields and open space in the suburbs,” he said.