CNBC issued a report this week that said that the multifamily realty market is in the midst of an "acute crisis". The article surmises that the top end of the market for luxury is overbuilt and susceptible to a flattening or market correction. Apartment developers in the top 150 US towns constructed 395 775 housing units last financial year. This is an increase of 46% compared to the previous year. The majority of the new units of housing are luxurious communities. ,Get more info.

I've seen a lot of major developments being built at a rapid pace when I lived in Boston for the past few years. A majority of these developments are luxury homes that the majority of people are unable to afford. The Boston Globe's Spotlight Team recently published a series of articles on the growth of the "Seaport" neighborhood. The article highlighted its lack of affordable housing and the overabundance of luxury homes that do not meet the needs of the diverse population in the city.

Are these multifamily developments danger to the multifamily sector? The risk of Class A new construction is evident if the market is flat but the existing Class B & C multifamily communities are uniquely positioned to stand up to market imbalances and corrections. Let's examine the causes for this luxury boom, and what happens if the boom ends.

The demand for luxury goods is strong

There are two major reasons of the growing demand for luxury apartment. Millennials and empty-nester baby boomers are flocking to city centers such as Boston, Austin & Denver with a discerning taste for luxurious finishes and amenities-packed properties. One reason for this boom is that a lot of double-income millennial households and empty nesters who can afford 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. It seems like there is an appalling quantity of amenities available with each new building. These types of modern amenities are being included in development projects in a fast-paced manner and aren't cheap.

New construction is expensive.

The main reason why the majority of new housing complexes you see being put up for sale is luxurious is because of the ever-rising cost of construction labor and materials. Construction is a high-demand industry and the materials are at their most expensive ever. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't need to be in high-end structures or in affordable ones." It's the same price. It costs the identical." To make sure that affordable housing is available cities are now enforcing laws that require developers to incorporate affordable units in their new construction projects. Typically between 10%-20% depending on the number of units and location. However, these regulations alone do not guarantee a significant increase in the amount of affordable housing.

If Affordable Housing isn't Built, What is the alternative? Visit.

Over the past few decades, there has been building boom and bust cycles. You will find many apartments built between 1970 and 90 in various markets across the nation. While these homes may appear out-of-date compared to the current construction, the "bones” are still good. The buildings built during this time were constructed using advanced materials and techniques. They typically just require minor repairs, and wear-related items are able to be replaced. These communities and their secondary markets are well-positioned to offset the flood of luxury homes. They also provide affordable housing. These Class B properties are able to thrive in any economic environment. When the economy is thriving Class C tenants are able to move up into Class B properties When the economy is in decline and Class A tenants are unable to no longer justify the luxury rents, and they typically shift to more affordable Class B properties. These properties are often offered for less than the cost of building. This permits investors to provide an ideal place to call home and yet still pay appealing rents that tenants of different income levels can afford.
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