In the last week, CNBC published an article in which they claimed that "There is an acute crisis coming towards us" within the multifamily real estate market. The article concludes that the top end of the market for luxury is overbuilt and vulnerable to a flattening or market correction. Apartment developers in the top 150 US towns delivered 395 775 new housing units during the fiscal year. This represents an increase of 46% compared to the previous year. Of these new homes, around 75-80% are classified as luxury communities. ,Find out more.

While living in Boston over the past few years, I have witnessed numerous major developments being constructed in a rapid manner. It's not surprising that the vast majority of these homes are luxury homes which the average citizen can't afford. The Boston Globe's Spotlight Team recently published a series of articles on the growth of the "Seaport" neighborhood. It highlighted the city's lack of affordable housing as well as the overabundance luxury housing that don't meet the needs of the diverse population of the city.

Do these multifamily developments pose an imminent threat to the multifamily market? The risk to Class A new construction is obvious if the market flattens but the existing Class B & C multifamily communities are uniquely positioned to withstand market imbalances and corrections. Let's go through the reasons behind why there's been a luxury boom and what could happen when demand slows.

Demand for luxury is on the rise

There are a few key drivers behind the rising demand for luxury apartments. Baby boomers and empty nesters are flocking to city centers like Boston, Austin & Denver with a discerning taste for high-end finishes and amenity-packed properties. One reason to this increase is that a lot of double-income households of millennials and empty nesters that can afford to buy are choosing to rent. Luxury gyms, concierge service and full-service spas for pets are becoming more commonplace. It seems like there is an astonishing number of amenities offered with every new construction. Developers are rushing to incorporate these modern perks in their developments, however they're not at a cost.

The cost of construction can be expensive.

The reason the majority of new housing complexes you see that are on the market is luxurious is because of the rising costs of construction materials and labor. The demand for construction labor is at an all-time high and the price of building materials is at their highest ever been. As Toby Bozzuto, CEO of Bozzuto Group puts it, "The two-by-4 doesn't matter if it's in a luxury building or in an affordable building. It's priced the same." Due to the high cost of prices for labor and materials as well as the rising value of the natural resources developers are being obliged to build luxurious products since the numbers don't allow for building anything else. Cities are being forced to adopt laws that force developers to create a certain number of affordable units within their new construction projects. The average unit count and the location determines how the developers will be able to charge. But, on their own, these rules won't result in a significant growth in affordable housing.

What are the alternatives to housing that is affordable? Clicking here.

Throughout the decades there have been building booms and busts. You will find many apartments built between 1970 and 90 in various cities across the nation. Although these properties might seem out-of-date compared to the current construction but the "bonesare still in good condition. These buildings were constructed with modern materials and techniques. They generally need only surface repairs and wear and tear items can be replaced. These communities and their secondary markets are well placed to counter the influx of luxury homes. They also offer affordable housing. The best part about Class B properties is that they generally perform well across all economic climates. When the economy is strong Class C tenants are able to move into Class B properties. When the economy is struggling tenants of Class A are forced to move down to Class B properties. These properties are often available for less than the cost of building. This permits investors to provide an ideal property to live in while still offering appealing rents that tenants of different incomes can afford.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki