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This is an old revision of Why Are So Plenty Of Luxury Residences Being Constructed made by EllY732 on 2022-11-28 09:44:17.
I've seen a lot of major development projects being constructed at an incredible pace when I lived in Boston over the last few years. The majority of these properties are luxury homes that most people cannot afford. In reality there is a reason why the Spotlight Team at the Boston Globe recently published a number of pieces that focused on the growth of the "Seaport" neighborhood. The article pointed out the absence of affordable housing as well as the overabundance of luxury homes that do not meet the needs of the diverse population in the city.
With the arrival of all these new luxurious multifamily homes is this putting the entire multifamily industry at risk of collapse or flattening? The threat to Class A new construction is apparent if the market flattens, however; the existing Class B & C multifamily communities are well-positioned to withstand market imbalances and corrections. Let's look at the reasons for this boom in luxury, and what happens if the boom comes to an end.
Demand for luxury is on the rise
There are a couple of important factors that drive the demand for luxury apartments. Baby boomers are making their way to cities such as Boston Austin, Boston, and Denver. They have a keen taste for luxury finishes and amenities-packed properties. One of the main reasons to this increase is that lots of double-income millennial households and empty nesters with the money to buy are opting to rent. The latest gyms, concierge services and full-service spas for pets are now regular. Every time a new construction is completed there is a sense that there is an amenities arms race. These kinds of modern facilities are being integrated into the projects of developers rapidly and aren't cheap.
New construction is expensive.
High-end housing is the primary reason for the fact that most new developments you see on the market are expensive. This is because of the increasing cost of construction work. Construction labor is highly sought-after and the materials are at their most expensive ever. As Toby Bozzuto, CEO of Bozzuto Group puts it, "The two-by-4 doesn't matter if it's in a luxurious building or in an affordable structure. It's the same price." Because of the high prices for labor and materials as well as the rise in the value of natural resources, developers are forced to build luxury products because the numbers simply don't allow for building any other type of construction. Cities are being forced to adopt regulations to force developers to construct an amount of affordable homes within their construction projects. Typically between 10%-20% depending on the unit count and location. This will not cause an increase in housing for the poor.
If Affordable Housing Isn't Built, what is the Alternative? Learn more.
Through the years, there has been building boom and bust cycles. In many areas across the country, you'll see a lot of apartments constructed between the 1970's and the 1990's. Although these properties might seem out-of-date compared to the current construction, the "bonesremain in good shape. Buildings built during this time frame were built with contemporary materials and techniques, and generally only require surface rehabilitation with wear items replaced. These communities as well as their secondary markets are well placed to counteract the overflow of luxury apartments. They also provide affordable housing. The great thing about these Class B properties is that they generally excel in all economic climates. If the economy is flourishing, Class C tenants shift to Class B properties . When the economy is struggling the Class A tenants will find it difficult to justify the extravagant rents and typically move down to class B properties. Investors can typically purchase these properties at less than the cost of building and can thus provide a comfortable living space, yet maintain rents affordable to tenants of many income ranges.
