The week before, CNBC published an article suggesting that "There is a crisis of extreme proportions headed our way" in the multifamily real estate market. According to the article, the luxury market's upper end is overcrowded and susceptible to market corrections or flattening. In reality, apartment builders in the top 150 US cities constructed 395,775 brand new housing units in the last year, which marks an increase of 46% year-over-year. Of these new units of housing, about 75-80% of them are classified as luxury communities. ,Click here.

In my time in Boston in the last few years, I've seen numerous major developments being constructed at a breakneck speed. It's not surprising that the vast majority of these homes are high-end luxury apartments which the average citizen are unable to afford. In actuality it was the Spotlight Team at the Boston Globe recently released a set of pieces that focused on the creation of the "Seaport" neighborhood. It highlighted the city's shortage of affordable housing, as well as the overabundance luxury housing that don't meet the needs of the diverse population of the city.

With the advent of all these luxury multifamily properties could this put the entire multifamily market at risk of flattening or even a collapse? The threat to Class A new construction is evident if the market is flat, however; 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 it comes to an end.

Luxury demand is strong

There are two major reasons for the rising demand for luxury homes. Generation Y and empty nester baby boomers are moving into cities like Boston and Austin as well as Denver, with a taste for luxurious finishes and amenities-packed buildings. One reason to this increase is that many double income households, as well as empty nesters that can afford to buy are choosing to rent. Facilities like top-of-the-line fitness centers, concierge services, and full-service pet spas are becoming standard. There's an appalling number of amenities offered in every new building. These kinds of modern facilities are being integrated into developers' projects rapidly, but it isn't cheap.

New construction is expensive

The primary reason for the overwhelming majority of new homes coming on the market are luxurious is because of the rising price of construction materials and labor. The demand for construction work is at an all-time high, as is the cost of building materials is at the highest they've ever been. According to Toby Bozzuto, CEO of Bozzuto Group puts it, "The two-by-4 doesn't matter if it's in a luxury structure or in a budget-friendly building. It's the same price. As a result of high prices for labor and materials as well as the rise in the value of raw land developers are required to construct luxury homes due to the fact that the numbers do not allow for building any other type of construction. Cities are being forced to adopt rules that require developers to build the right amount of affordable units within their new construction projects. The typical range is between 10 and 20%, based on unit count and the location. These regulations will not lead to an increase in affordable housing.

If Affordable Housing Isn't Constructed, What's the Alternative? Going here.

Through the years, there have been several building booms and busts. In many areas across the country, you will find a large number of homes built between the 1970's and 1990's. While these properties may feel outdated compared to what's being built today however, they're "bones" are good. The buildings built during this time were constructed with modern materials and techniques. They usually just require minor repairs, and wear-related items are able to be repaired. These communities, as well as the secondary markets they're located in, are positioned well to counterbalance the flood of luxury new homes and to maintain housing that's fairly affordable. The Class B homes can thrive in any economic environment. If the economy is flourishing Class C tenants are able to shift to Class B properties . When the economy is suffering and Class A tenants are unable to no longer justify the luxury rents, and they typically shift to Class B properties. They are typically accessible for less than cost of building. This allows investors to offer an ideal location 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