In part one of this series on the impact of unions of the city of Phildelphia, we looked at the raw criminality directed at developers who dare to build non-union projects and showed how one company, Post Brothers, is fighting back. In part two, we look at the economic impact and hidden costs of the union stranglehold on construction in Philadelphia.
Union dominance in Philadelphia has deformed normal market conditions and put the city at a disadvantage, according to Philadelphia magazine:
A Philadelphia carpenter makes nearly twice as much as his counterpart in Washington, D.C., where similar space rents for almost twice as much. The housing market fares no better. A 2008 report by Econsult found it to be unprofitable to build in most of Philadelphia, ranking it below even Madison, Wisconsin, as a desirable place for new construction.
These discrepancies hurt us all, even shifting our demographics. According to Gillen, the economics of our Trades unions hinder middle-income developments and force developers toward high-end luxury residences. Yet Building Trades flaunts its power with labyrinthine work rules and outrageous demands. Most famously, the Comcast tower was equipped with two sets of pipes–one “green” and functional, the other old-fashioned and disconnected–to feed the union beast. But the Trades are an everyday drag on the local economy. Union plumbers must call in the electricians if a single wire needs to be moved.
Despite that, businesses like Michael and Matthew Pestronk’s Post Brothers have still tried to work in Philly. Their $38 million Goldtex apartment renovation that was the focus of heated union attacks last year is a good example of how these businessmen, like any shrewd investor, have tried to find areas for growth in the sluggish Obama economy.
As the Philadelphia Business Journal explains about Goldtex:
The 11-story building is one of six distressed apartment projects the Pestronks, under their Post Brothers Apartments company, have quietly acquired during the last five years. Their strategy is to seize on the current market in which many banks have taken back properties from over extended owners who have defaulted on mortgages, buy those loans on the cheap and take ownership of a property.
“We want to buy something that is very broken and with a motivated seller who is in trouble. We’re the kind of guys who will step in and do a difficult deal fast,” said Matt Pestronk, 34.
The business model is made possible in part by the Post Brothers often acting as both developer and the contractor on some of their projects, which leads to cost efficiency.
The unions are so embedded in the Philadelphia political machine that it is now mandated that any government construction job must be done by union labor. However, when a company like the Post Brothers does a project that’s fully privately funded, they are able to do the project without the unions. Of course, the unions struck back with threats, violence, and property destruction, but it’s not just the Post Brothers they are hurting; the unions are killing the economy.
Apartments in the non-union construction city of Washington D.C. contribute 8.2 billion dollars to the local economy, whereas union controlled Philadelphia apartment residents contribute only 3.5 billion to their economy. This disparity exists even though there are actually many more apartment dwellers in Philadelphia than in the District of Columbia.
That’s because a construction boom has taken place in Washington, whereas construction has stagnated due to the union grip up the road in Philly.
In the next part of this series, we look at the long history of construction union thuggery in Philadelphia.