CNBC published a report this week that stated that the multifamily realty sector is experiencing an "acute crisis". The article suggests that the top end of the luxury market is over-built and prone to a flattening or market correction. In reality, apartment builders in the largest 150 US cities delivered 395,775 new housing units in the last year, which represents an increase of 46% year-over-year. Of these new homes, around 75-80% are considered luxury communities. ,Find out more.

I've seen many major developments built at breakneck speed during my time in Boston over the last few years. The majority of these properties are luxury homes which the majority of people 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 shortage of affordable housing and the inordinate supply of luxury homes that don't meet the needs of its diverse population.

With the emergence of all these multi-family luxury properties is this putting the entire multifamily market at risk of flattening or even a collapse? If the market slows down and the risk of collapse increases, it is for Class A new construction. However, the existing Class B & C multifamily communities are able to withstand market fluctuations and imbalances. Let's look at the reasons of this luxury boom and what will happen if it ends.

Luxury Demand is Strong

There are a few important factors that drive the demand for luxury apartments. Millennials and empty nester baby boomers are moving to cities like Boston, Austin, and Denver with a discerning palate for luxury finishes and amenities-packed properties. This boom can be attributed to the fact that empty nesters and households with double incomes prefer renting rather than purchase. Perks such as high-end fitness centers, concierge services, and full-service pet spas are now the norm. With every new development it appears that there is an amenities arms race. These kinds of modern amenities are being included in the projects of developers rapidly, but it isn't cheap.

The cost of construction can be expensive.

The main reason why the vast majority of the new housing complexes you see that are on the market is luxurious is because of the ever-rising costs of construction labor and materials. Construction is a high-demand industry and materials are at their highest price ever. As Toby Bozzuto, CEO of Bozzuto Group puts it, "The two-by-four isn't concerned about whether it's in a luxurious building or in a low-cost structure. It's priced the same." Due to the high cost of cost of labor and materials, and the rising value of the raw land developers are being required to construct luxury homes since the numbers don't work to build anything else. Cities are being forced to adopt laws that force developers to create an amount of affordable homes within their new construction projects. The typical range is between 10 and 20%, based on the number of units and location. The regulations won't result in an increase in housing for the poor.

If Affordable Housing Isn't Built, What is the alternative? Click here.

There have been many boom and bust cycles within the construction industry over the decades. You will find many apartments built between 1970 and 1990 in various areas across the nation. Although these properties might seem out-of-date compared to the current construction however, the "bonesremain in good shape. The buildings built in the frame have been constructed with modern materials and techniques and typically only need surface rehabbing with wear items replaced. These communities, as well as their secondary markets are well placed to offset the flood of luxurious apartment buildings. They also provide affordable housing. These Class B properties can thrive in any economic environment. When the economy is strong Class C tenants are able to are able to move into Class B homes. When the economy is struggling tenants of Class A are forced to move down to Class B homes. These properties are often available for less than the price of construction. This permits investors to provide an ideal property to live in and yet still pay attractive rents that tenants of different incomes can afford.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki