Regional Spotlight: Pittsburgh, Pennsylvania
The Steel City’s innovative spirit keeps the market hot under duress.
Pittsburgh, Pennsylvania, has not historically been a city of extremes. During the housing boom, the subsequent housing crash and the Great Recession of the early 2000s, property values remained largely flat relative to the dramatic swings in the rest of the country.
During the last 30 years, unemployment rates have never ventured into double-digit territory. Instead, they have remained firmly between 4% and 7%, with the notable exception being 8.3% in March 2010.
When it comes to population, the city has little to offer in the way of fireworks either. In fact, Pittsburgh’s population has been in a long, slow decline since the 1980s when the steel mills closed en masse. However, even that usually troubling metric has not created a terrible furor in the local economy.
Pittsburgh has boasted substantially higher per-capita incomes than national averages since 2010, thanks to a thriving STEM (science, technology, engineering, math) economy and a supportive environment for oil and gas and natural gas businesses.
For real estate investors, investing in Pittsburgh can be an extremely rewarding experience if they take the time to understand the unique dynamics of the metro area’s economy.
Pittsburgh’s relatively steady metrics, both positive and negative, have created enormous opportunity in the market over the years. For example, in early 2007, Pittsburgh home values seemed to lag far behind the rest of the country; nearly a third of the city’s homes were decreasing in value while the rest of the country’s real estate values soared. Then, when the housing market crashed, the nearly flat growth created enormous opportunity for developers who purchased entire portfolios of homes in the Steel City, renovated them and sold them over the next decade as the local housing market heated up.
“That is where I started,” said local developer Al DePasquale, who purchased an 18-property single-family portfolio in 2007 for $360,000. Today, those properties sell for about $475,000.
Many economists and analysts believe that Pittsburgh’s slow population decline is being
offset by the growth potential created by STEM jobs through local universities such as Carnegie Mellon and the University of Pittsburgh. Both schools sponsor tech incubators dedicated to keeping graduates in the local area by helping them start companies in Pittsburgh rather than moving to Silicon Valley or San Francisco.
According to Pew Charitable Trusts data, about 7% of all jobs in Pittsburgh are STEM jobs. Along with business, management, and arts and media jobs, those STEM positions have contributed to productivity and income growth in the city even as the population continues to decline. Thanks to the presence of fracking company Marcellus Shale, which made Pennsylvania a top producer of natural gas in the U. S. after moving operations near Pittsburgh in the mid-2000s, the Pittsburgh economy may still be considered healthy even in light of its population decline.
“Chilling” Uncertainty
One possible cloud (or silver lining of opportunity) for Pittsburgh investors is declining new construction. Despite 2020’s rising home values and skyrocketing listing prices, the Pittsburgh market is facing a potentially troubling 2021 if construction starts do not catch up to projections.
Local developer Jeff Burd, owner of the Tall Timber Group and a local publisher focusing on development and construction, initially estimated project starts in the area would reach $4.8 billion this year. However, the tally was only about a third of the way there as of June 2020.
“It’s the economic uncertainty that is chilling construction,” Burd observed.
Another potential fly in the ointment for the Pittsburgh economy could be the presidential election. Democrat presidential nominee Joe Biden made the city his first official campaign stop following his acceptance of his party’s nomination in August, but not everyone was happy to see him.
Biden is well known as an “anti-fracking, anti-oil and -gas” candidate, explained Jon O’Brien, executive director of the General Contractors Association of Pennsylvania in a Pittsburgh Post-Gazette interview published in mid-August. Although Biden has said he does not want to ban fracking outright, his current climate proposal would ban new oil and gas permits in certain scenarios, and many believe his administration would seek to go farther once in office.
O’Brien cited concerns over COVID-19 resurgence in the fall and a “wait-and-see” attitude about the presidential election for much of the construction slowdown in the area.
“I think little by little, it [construction] is picking up more and more,” he said.
Burd noted single-family construction is up in the area by about 5% for the year so far, although that is about 2.9% lower than this time in 2019. Pittsburgh has a shortage of available lots for single-family housing, however, so residents may have to turn to multifamily options. Either way, there is still pent-up demand in the region simply because inventory is so limited.
Resistant Industry Sectors
One of the reasons Pittsburgh has survived and even thrived in situations that might
have sent other cities into a long decline is the inherent resilience of its diverse jobs market. Although the metro area lost more than 202,000 jobs in February, March and April 2020, the city had made up more than half of those positions by the end of August.
“What helps us is our concentration in professional services, financial services, education and health care … industries that are rebounding quicker and will help
stabilize the economy,” said Jim Futrell, vice president of market research for the Allegheny Conference on Community Development (ACCD).
He noted that many large financial employers in the area, such as PNC Bank and BNY Mellon, maintained almost all their employment base by converting to a remote-
working environment.
However, like most other trends in Pittsburgh, it is unlikely the recovery or economic turnaround will be particularly striking or expedient. According to a report the ACCD released in August, unemployment is dropping fast in Pittsburgh and surrounding areas, but the ongoing loss of state and municipal revenues “will likely offset some of the [economic] gains” in the area.
The education sector represents another bright spot in the economy, since most local experts expect that school reopenings, virtual or otherwise, will directly result in another employment spike.
“[Education] accounts for higher employment here than the country as a whole,” Futrell said. “As school resumes, that, too, will rebound.”
With its history of overcoming obstacles in surprising ways, Pittsburgh seems well-
positioned to enter 2021 steady and strong. n
Sidebar: Breaking Down the Pittsburgh Employment Rebound
Pittsburgh trends do not tend to be V-shaped, so the metro area’s recovery of more than half of all jobs lost in spring 2020 has been a surprising bright point for the city. By the end of July 2020, the market had regained 53.1% of the 202,300 jobs lost between February and April due to COVID-19’s stay-at-home mandates and distancing orders. The metrics behind which positions have returned and which ones may be gone forever could play a huge role in the future strength of the Pittsburgh housing market.
Of the jobs lost this spring, about two-thirds (67%) were in the fields of leisure and hospitality, construction, retail, and health care and social assistance sectors. However, about 9 in 10 jobs added back between May and the end of July were in these sectors.
Pittsburgh’s economic core is further bolstered by financial services employees, most of whom did not lose their jobs but converted to remote-work settings, and educators, who are likely to return either online or in person to the area’s multiple educational
institutions this fall.
The strong presence of health care and healthcare-related services in the returning jobs data indicates the presence of a resilient, recession-resistant population of residents in the area. Furthermore, the city’s thriving manufacturing sector for high-tech medical devices has become more prominent in the last decade and continues to grow, contributing to accelerated job growth in high-earner positions that tend to create more jobs in lower wage brackets in a ripple effect.
Overall, the population returning to work in Pittsburgh is one likely to retain employment in the event of a “second wave” of coronavirus infection or other economic
volatility. However, it is noteworthy that the area’s unemployment numbers remain slightly higher than the rest of the country. This may be due in part to Amazon’s recent decision to cut ties with several Pittsburgh-area and Philadelphia delivery services. The move resulted in the loss of more than 600 jobs in one fell swoop.
Although Amazon recently made a public statement about the decision and insisted, “Amazon is working closely with all impacted drivers to ensure they find opportunities to deliver Amazon packages…with little to no disruption in pay,” the local companies have filed notices indicating they will lay off hundreds of employees as a result of “a major client abruptly ending our contract, causing this unforeseen business circumstance,” in the words of one filing. The situation is not unique to the Pittsburgh area; Amazon has been canceling contracts across the country. However, the company is currently seeking to fill nearly 1,500 jobs in new fulfillment and distribution centers in Pittsburgh.
The Steel City is often held up as a positive example of the kind of economic transformation that is possible when a city focuses on recruiting the right types of companies to provide solid jobs and a sound economic base for residents. However, Pittsburgh also is uniquely advantaged among midsized and 18-hour cities in
need of transformation thanks to the presence of elite academic institutions, a significant subset of well-paying essential, but relatively unskilled positions in the fracking and oil-and-gas industries, and STEM sectors.
The city’s steady growth trajectory in all areas outside of population expansion create a heated but largely solid market in which investors can place capital, expand portfolios and grow.
