CNBC issued a report this week stating that the multifamily real estate sector is experiencing an "acute crisis". The article suggests that the upper end of the luxury market is over-built and prone to a flattening or a market correction. In reality, apartment builders in the largest 150 US cities delivered 395,775 new housing units last year, which represents a 46% increase Y-o-Y. About 75-80% of these new housing units are luxurious communities. ,Web site.

While living in Boston in the last few years, I've seen numerous major developments being constructed at a breakneck speed. As a result, the overwhelming majority of these homes are luxurious luxury residences which the average citizen cannot afford. In reality it was the Spotlight Team at the Boston Globe recently published a number of articles that focused on the creation of the "Seaport" neighborhood. The article highlighted the city's deficiency of affordable housing, as well as the excess of luxury housing that doesn't cater to its diverse population.

With the emergence of all these new luxury multifamily properties is this putting the entire multifamily industry at risk of collapse or flattening? The danger to Class A new construction is apparent if the market flattens but existing Class B & C multifamily communities are well-positioned to withstand market imbalances and corrections. Let's examine the causes for this luxury boom, and what happens if it comes to an end.

Luxury Demand is Strong

There are two main drivers of the growing demand for luxurious homes. Millennials and empty-nester baby boomers are flocking to city centers such as Boston, Austin & Denver with a desire for luxurious finishes and amenities-packed properties. One reason for this growth is that lots of double-income households of millennials and empty nesters with the money to buy are choosing to rent. High-end gyms, concierge services and full-service spas for pet owners are all becoming regular. With every new development it appears that there's an arms race. Developers are rushing to incorporate modern amenities in their developments, however it's not inexpensively.

The cost of construction can be expensive.

The primary reason for the majority of new residential developments that are on the market is luxury is due to the rising cost of construction materials and labor. The demand for construction labor is at an all-time high, and the cost of materials is at their highest ever been. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't need to be in high-end buildings or affordable buildings." It's priced the same." It costs the identical." Cities are being forced to adopt regulations to force developers to construct the right amount of affordable units in their construction projects. The average unit count and the location will determine how the developers will be able to charge. This will not result in an increase in affordable housing.

If Affordable Housing isn't Constructed, What's the alternative? Visit here.

There have been numerous cycles of boom and bust within the building industry over the decades. You will find many apartments constructed between 1970 and 1990 in various cities across the nation. While these homes may appear old-fashioned compared to modern construction however, the "bonesare still in good condition. Buildings built during this time frame were built with modern techniques and materials. They typically only need surface rehabbing and wear-related items replaced. These apartment communities, and the secondary markets they're in, are positioned well to counterbalance the flood of luxury homes being built and provide housing that's relatively affordable. The benefit of these Class B homes is that they typically are able to perform well regardless of the economic conditions. If the economy is flourishing Class C tenants are able to shift to Class B properties . When the economy is in decline and Class A tenants are unable to not afford the high rents and typically move down to more affordable Class B properties. Investors can usually buy these homes for less than the cost to build they can offer a wonderful living space, yet maintain rents in a range that is appealing for tenants with different income ranges.
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