This past week, CNBC published an article which suggested that "There is an acute crisis coming our way" in the multifamily real estate industry. The article concludes that the upper tier of the market for luxury is over-built and prone to flattening or a market correction. Apartment developers in the 150 largest US towns constructed 395 775 new housing units during the fiscal year. This is an increase of 46% compared to previous years. Nearly 75-80% of these new homes are in luxury communities. ,Clicking here.

I've witnessed many large developments built at breakneck speed while living in Boston over the last few years. Most of these homes are luxury homes that the majority of people are unable to afford. In reality there is a reason why the Spotlight Team at the Boston Globe recently released a set of articles that focused on the growth of the "Seaport" neighborhood. It highlighted the city's shortage of affordable housing and the overabundance luxury housing which doesn't accommodate its diverse population.

With the advent of all these new multi-family luxury properties is this putting the entire multifamily sector at risk of a flattening or even a collapse? The danger of Class A new construction is apparent if the market flattens, however; the existing Class B & C multifamily communities are uniquely placed to stand up to market imbalances and corrections. Let's go through the reasons behind why there's been an unprecedented growth in the luxury market and what happens if demand subsides.

The demand for luxury goods is strong

There are a couple of important factors that drive the rising demand for luxury apartments. Millennials and empty-nester baby boomers are flocking to city centers such as Boston, Austin & Denver with a discerning taste for luxury finishes and luxurious buildings. One of the main reasons for this growth is that lots of double-income households of millennials and empty nesters who can afford to buy are opting to rent. Facilities like top-of-the-line fitness centers, concierge services, and fully-service pet spas are now the norm. With each new building, it seems as though there's an arms race. Developers are actively incorporating these modern perks into their plans, but, it doesn't come at a cost.

New construction is expensive

The reason the vast majority of the new residential developments coming on the market are luxurious is because of the rising price of construction labor and materials. Construction labor is highly sought-after and materials are at their highest price ever. Toby Bozzuto is the CEO of Bozzuto Group. He says, "The two-by four doesn't matter if it's in luxurious buildings or low-cost ones." It's the same cost. As a result of high prices for labor and materials as well as the rise in the value of natural resources developers are being obliged to build luxurious products since the numbers don't allow for building any other kind of building. Cities are being forced to adopt laws that force developers to construct a certain number of affordable homes within their new construction projects. The average unit count and the location determines how the developers will be able to charge. This will not lead to an increase in affordable housing.

What are the alternatives for affordable housing? Visit website.

There have been many cycles of boom and bust within the building industry throughout the decades. There are many apartment buildings built between 1970 and 1990 in various cities across the country. Although these homes may appear old-fashioned when compared to the buildings that are being built nowadays but the "bones" are good. Built during this period were constructed using advanced materials and techniques. They usually only require surface rehabilitation and wear and tear items can be replaced. These communities, as well as the secondary markets that they're in are strategically placed to counterbalance the influx of new luxury apartments and provide housing that's reasonably affordable. The best part about Class B properties is that they tend to perform well across all economic climates. If the economy is flourishing, Class C tenants shift to Class B properties . When the economy is suffering, Class A tenants can no longer justify the luxury rents and typically move down to more affordable class B properties. Investors can usually purchase these properties for less than the price of construction and can thus offer a wonderful place to live yet still keep the rents in a range that is appealing to tenants of many income levels.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki