CNBC issued a report this week stating that the multifamily realty market is facing an "acute crisis". According to the report, the upper-end of the luxury market is crowded and prone to market corrections or flattening. Apartment developers in the 150 largest US towns constructed 395 775 new housing units in the last fiscal year. This represents an increase of 46% over previous years. In these new homes, around 75-80% of them are considered to be luxury communities. ,Website.

I've seen a lot of major developments built at breakneck speed during my time in Boston in recent years. A majority of these developments are luxurious luxury residences which the majority of people can't afford. In reality there is a reason why the Spotlight Team at the Boston Globe recently released a set of articles that focused on growth of the "Seaport" neighborhood. It highlighted the city's shortage of affordable housing and the excess of luxury housing that don't meet the needs of the diverse population of the city.

With the advent of all these luxurious multifamily homes, does this put the entire multifamily market at risk of collapse or flattening? If the market is flat, there is a risk for Class A new construction. However, existing Class B & C multifamily communities can withstand market volatility and market imbalances. Let's look at the reasons of this luxury boom and what will happen if it comes to an end.

The demand for luxury goods is high.

There are a couple of key drivers behind the increasing demand for luxury homes. Millennials and empty nester baby boomers are moving into cities such as Boston, Austin, and Denver with a discerning palate for luxurious finishes and amenities-packed structures. This growth can be attributed to the trend that empty nesters and families with double incomes in the millennial generation prefer renting rather than buy. High-end gyms, concierge services and full-service spas for pets are all becoming the norm. There's an astonishing quantity of amenities available with every new construction. Developers are aggressively incorporating these modern perks in their developments, however they're not at a cost.

New construction is expensive

The main reason why the overwhelming majority of new housing complexes you see that are on the market is expensive is because of the ever-rising cost of construction labor and materials. The demand for construction labor is at an all-time high, as is the cost of building materials is at the highest they've ever been. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't matter if it's in luxurious buildings or affordable buildings." It's the same price." As a result of high prices for labor and materials as well as the rise in the value of natural resources developers are being forced to build luxury products because the numbers simply don't make sense to construct any other kind of building. To provide affordable housing cities are enforcing rules which require developers to build affordable units in new construction projects. The typical range is between 10 and 20%, based on the number of units and location. But, on their own, these rules will not provide a meaningful increase in the number of affordable housing.

What are the alternatives for affordable housing? Click here.

There have been many cycles of boom and bust in the building industry over the decades. In many areas across the country, you'll see a lot of apartment buildings built in the 1970's-1990's. While these properties may feel old-fashioned in comparison to the modern buildings being constructed in the present, the "bones" are good. These buildings were constructed with modern materials and techniques. They generally need only surface repairs and wear-related items are able to be repaired. These communities, as well as the secondary markets that they're in, are positioned well to counterbalance the flood of luxury new homes and provide housing that's reasonably affordable. The great thing about these Class B properties is that they typically perform well regardless of the economic conditions. If the economy is robust Class C tenants are able to move into Class B properties. If the economy is in decline tenants of Class A have to shift to more affordable Class B homes. Investors can usually purchase these properties at a fraction of the cost to build and can thus provide a comfortable living space, yet maintain rents affordable to tenants with varying income levels.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki