The week before, CNBC published an article suggesting that "There is an urgent crisis coming towards us" in the multifamily real estate sector. The article concludes that the upper tier of the market for luxury is over-built and prone to a flattening or market correction. Developers of apartments in the top 150 US towns delivered 395 775 new housing units in the last financial year. This is an increase of 46% compared to the previous year. Of these new housing units, nearly 75-80% of them are considered to be luxury communities. ,Home page.

I've witnessed many large development projects being constructed at an incredible pace when I lived in Boston in recent years. It's not surprising that the vast majority of these properties are luxury homes that your average citizens can't afford. The Boston Globe's Spotlight Team recently published a series of articles on the progress of the "Seaport" neighborhood. It highlighted the city's lack of affordable housing, as well as the excess of luxury housing that doesn't cater to the diverse population of the city.

With the emergence of all these luxury multifamily properties is this putting the entire multifamily sector at risk of flattening or collapse? The risk to Class A new construction is evident if the market is flat, however; the existing Class B & C multifamily communities are uniquely positioned to withstand market imbalances as well as corrections. Let's examine the reasons behind why there's been a luxury boom and what happens in the event that demand declines.

Luxury Demand is Strong

There are two major factors driving the increasing demand for luxury homes. Generation Y and baby boomers who are empty-nesters are flocking to city centers like Boston, Austin & Denver with a discerning taste for luxury finishes and luxurious buildings. One reason for this boom is that a lot of double-income households, as well as empty nesters with the money to buy are opting to rent. Facilities like top-of-the-line fitness centers, concierge services and pet spas that are full-service are now the norm. With each new building there is a sense that there's an arms race. These types of modern facilities are being integrated into the projects of developers at a rapid pace, but it isn't cheap.

Construction costs are high for new construction.

The primary reason for the overwhelming majority of new housing complexes you see that are on the market is luxury is due to the rising costs of construction labor and building materials. Construction labor is in high demand and the materials are at their most expensive ever. Toby Bozzuto is the CEO of Bozzuto Group. He says, "The two-by four doesn't care if it's in luxury structures or in affordable ones." It's the same price. It costs the identical." Cities are having to enact regulations to force developers to create an amount of affordable units in their construction projects. Most often, between 10% and 20% based on unit count and location. The regulations won't cause an increase in housing for the poor.

If Affordable Housing Isn't Constructed, What's the Alternative? Website.

There have been numerous boom and bust cycles within the building industry throughout the years. You will find many apartments built between 1970 and 90 in various markets across the United States. While these properties may feel very out of date when compared to the buildings that are being built in the present however, they're "bones" are quite good. The buildings built in the frame were built with contemporary materials and techniques, and generally only require surface rehabilitation with wear items replaced. These communities, as well as the secondary markets they serve are well placed to counteract the overflow of luxurious homes. They also offer affordable housing. These Class B properties can thrive in any economic environment. When the economy is thriving, Class C tenants shift to Class B properties When the economy is struggling, Class A tenants can no longer justify the luxury rents, and they typically shift to class B properties. Investors are able to purchase these properties for less than the cost to build they can provide a great living space, yet maintain rents in a range that is appealing for tenants with different income ranges.
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