This past week, CNBC published an article in which they claimed that "There is a crisis of extreme proportions that is coming our way" within the multifamily real estate industry. The article concludes that the upper tier of the market for luxury is over-built and prone to a flattening or market correction. In actuality, apartment developers in the largest 150 US cities constructed 395,775 brand new housing units last year, which is an increase of 46% Y-o-Y. The majority of the new housing units are luxurious communities. ,Visit website.

When I lived in Boston in the last few years, I've witnessed several major developments being constructed at an incredibly rapid pace. Most of these homes are luxury homes that the majority of people are unable to afford. In actuality there is a reason why the Spotlight Team at the Boston Globe recently published a series of articles that focused on the creation of the "Seaport" neighborhood. The article highlighted the lack of affordable housing, as well as the overabundance of luxury homes which does not serve the diverse population of the city.

With the arrival of all these new luxury multifamily properties is this putting the entire multifamily sector at risk of a collapse or flattening? The threat of 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 look at the reasons the reasons behind why there's been an unprecedented growth in the luxury market and what could happen if demand subsides.

The demand for luxury goods is strong

There are a couple of key drivers behind the demand for luxury apartments. Generation Y and baby boomers who are empty-nesters are descending on city centers such as Boston, Austin & Denver with a discerning taste for luxury finishes and luxurious buildings. One specific reason to this increase is that lots of double-income millennial households and empty nesters who can afford to buy are choosing to rent. High-end gyms, concierge services and full-service spas for pet owners are becoming more regular. With every new development there is a sense that there is an amenities arms race. These types of modern amenities are being incorporated into development projects at a rapid pace and aren't cheap.

The cost of construction can be expensive.

High-end housing is the primary reason for the fact that most new developments that are on the market are high-end. This is because of the rising cost of construction labor. The demand for construction work 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 matter if it's in luxurious structures or in affordable ones." It's priced the same." It costs the same." Cities are forced to pass regulations to force developers to create a certain number of affordable units within their construction projects. The typical range is between 10 and 20%, based on the unit count and location. This will not lead to an increase in affordable housing.

What are the alternatives to affordable housing? Go here.

Throughout the decades there have been several building booms and busts. There are many apartment buildings built between 1970 and 90 in various areas across the United States. While they may seem outdated compared to current construction but the "bonesare still in good condition. These buildings constructed in the frame were built with modern materials and techniques and typically require only surface renovations and wear-related items replaced. These communities and their secondary markets are well placed to counter the influx of luxurious apartments. They also provide affordable housing. The benefit of these Class B properties is that they generally excel across all economic climates. When the economy is strong Class C tenants are able to are able to move into Class B homes. When the economy is weak tenants of Class A have to shift to Class B homes. Investors can typically purchase these properties for only a small portion of the price of construction, which allows them to provide a comfortable home, but keep the rents in a range that is appealing to tenants with varying income ranges.
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