Supply Vs. Demand

4 Replies

This post may be an appeal to the more economically enlightened among you BPers. I am looking for feedback on an internal discussion I have been having. 

I recently purchased a property in the South Kensington neighborhood of Philadelphia. The area is experiencing a tremendous amount of building, old dilapidated properties or lots are being transformed and the area is definitely on the rise. I hold this to be great for the value of the property I purchased, with more and more people coming into the area new retail will follow and the area as a whole will be cleaned up. The increased desirability of the area will surely increase property values, however with a flood of new residences available, who is to say that the increased supply available won't stymie the appreciation that could be experienced. 

I do believe that the turn around of the area will inevitably win out, and that the result will be a rise in property values, but I thought I would post this topic to get some feedback, both from locals and out-of-state investors as well. 

I know many other cities like Boston, New York, Chicago, Portland, Atlanta, and Seattle (to name a few), have been experiencing gentrification. So feel free to weigh in!

-James

Hello @James Brand

I know that you say that more and more people are coming into the area; however, how long till you truly believe that it will be a really great place to live and raise a family? Is this a ten year out thought and feeling, or is this a 3-5 year out plan? I would make sure that you know how to gauge that if you are looking to buy more investments properties there. 

The area has more appeal for young professionals currently. If it experiences anything like the neighboring Fishtown, I would expect the next couple of years to have more young pros and trendy singles moving into the area. In 3 years time I think parts, especially Southeastern parts, to be great for families if they are not already...

@James Brand That is a question I also ask myself. With all the large developers building huge apartment complexes all over the city, what's the breaking point? At what point will there be more places to live than people, or at least places that people can afford.  

You have a valid question in regards to basic supply and demand. However the "demand" isn't static as it would need to be for your theory to hold true. As developers create the supply in the area it will slowly transform the neighborhood into a more desirable place to live. This is what demand is based on. Demand is who is willing or want to move into a neighborhood. As the neighborhood improves the pool of people that want to move in increases (demand). So I don't see supply outgrowing demand in this case as the supply of quality homes changes the demand.

This is evident in neighborhoods such as Northern Liberties and Fishtown.

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