In the last week, CNBC published an article suggesting that "There is a crisis of extreme proportions headed our way" within the multifamily real estate sector. According to the article, the market's luxury end is crowded and prone to market corrections or flattening. In fact, apartment developers in the top 150 US cities delivered 395,775 new housing units in the last year, which marks a 46% increase Y-o-Y. Of these new housing units, nearly 75-80% of them are classified as luxury communities. ,Visit here.

In my time in Boston in the last few years, I've witnessed many major developments being built at a breakneck speed. A majority of these developments are expensive luxury apartments that the majority of people are unable to afford. The Boston Globe's Spotlight Team recently published a series articles about the development of the "Seaport" neighborhood. It highlighted the city's lack of affordable housing as well as the excess of luxury housing that don't meet the needs of the diverse population of the city.

Are these multifamily developments a threat to the multifamily sector? If the market flattens it could be a problem for Class A new construction. However the existing Class B & C multifamily communities can stand up to market corrections and imbalances. Let's take a look at the motives for this luxury boom, and what happens if the boom comes to an end.

Demand for luxury is on the rise

There are a few major factors driving 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 keen interest in luxurious finishes and amenities-packed buildings. The rise in popularity is due to the trend that empty nesters and families with double incomes in the millennial generation are opting to rent instead than purchase. Perks such as high-end gyms, concierge services, and pet spas that are full-service are becoming standard. With every new development there is a sense that there is an amenities arms race. These types of modern amenities are being incorporated into the projects of developers in a fast-paced manner, but it isn't cheap.

Construction costs are high for new construction.

The reason the vast majority of the new housing complexes you see being put up for sale is luxury is due to the ever-rising price of construction labor and building materials. Construction is a high-demand industry and materials are priced at their highest price ever. Toby Bozzuto is the CEO of Bozzuto Group. He says, "The two-by four doesn't care if it's in luxury buildings or affordable buildings." It's the same price." It's the same." Cities are being forced to adopt rules that require developers to construct the right amount of affordable homes within their new construction projects. The typical range is between 10 and 20%, based on the number of units and the 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? Discover more here.

Through the years, there have been several building boom and bust cycles. In many markets around the country, you will find a large number of apartments constructed between the 1970's and 1990's. Although these homes may appear outdated in comparison to the modern buildings being constructed nowadays however, the "bones" are quite good. The buildings built in the frame have been constructed with contemporary materials and techniques, and typically require only surface renovations with wear items replaced. These communities and the secondary markets they serve are well-positioned to offset the flood of luxury homes. They also offer affordable housing. The best part about Class B homes is that they generally excel across all economic climates. If the economy is flourishing, Class C tenants are able to move into Class B properties . When the economy is in decline, Class A tenants can no longer justify the luxury rents, and they typically shift to more affordable Class B properties. They are typically offered for less than the cost of building. This lets investors offer the perfect location to live in while still offering attractive rents that tenants with different incomes can afford.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki