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 upper end of the market for luxury is overbuilt and vulnerable to a flattening or market correction. Developers of apartments in the top 150 US towns delivered 395 775 housing units last financial year. This is an increase of 46% compared to previous years. Nearly 75-80% of these new units of housing are luxurious communities. ,Homepage.

While living in Boston over the past few years, I've seen several major developments being constructed in a rapid manner. A majority of these developments are expensive luxury apartments which the majority of people can't afford. In fact there is a reason why the Spotlight Team at the Boston Globe recently published a series of articles that focused on development of the new "Seaport" neighborhood. The article highlighted its lack of affordable housing as well as an overabundance of luxury housing that do not meet the needs of the diverse population within the city.

Are these multifamily developments an imminent threat to the multifamily sector? If the market flattens, there is a risk of a collapse for Class A new construction. However, existing Class B & C multifamily communities can stand up to market corrections and imbalances. Let's examine the causes for this luxury boom, and what happens if the boom is over.

The demand for luxury goods is strong

There are two main drivers for the rising demand for luxury apartments. Generation Y and empty nester baby boomers are moving into cities like Boston and Austin as well as Denver, with a taste for luxury finishes and amenities-packed properties. One reason to this increase is that many double income households, as well as empty nesters who can afford to buy are opting to rent. Luxury gyms, concierge service and full-service spas for pets are becoming more regular. There's an appalling number of amenities offered with every new construction. Developers are actively incorporating modern amenities into their projects; however they're not at a cost.

New construction is expensive

The primary reason for the vast majority of the new residential developments being put up for sale is expensive is because of the ever-rising costs of construction labor and materials. Construction labor demand is at an all-time high and the price of building materials is at their highest ever been. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't care if it's in luxury buildings or low-cost ones." It's exactly the same price. It costs the identical." To provide affordable housing, cities are enforcing regulations that require developers to include affordable units within 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 growth in affordable housing.

What are the alternatives to affordable housing? Read this.

There have been many boom and bust cycles in the building industry over the years. In many markets around the country, you will see a lot of homes built between the 1970's and the 1990's. While they may seem old-fashioned compared to modern construction but the "bonesremain in good shape. The buildings built in the frame were constructed using contemporary materials and techniques, and typically only need surface rehabbing with wear items replaced. These communities and the secondary markets they serve are well placed to counter the influx of luxury homes. They also provide affordable housing. These Class B properties can perform in any economic climate. When the economy is strong Class C tenants can move up into Class B properties When the economy is struggling and Class A tenants are unable to no longer justify the luxury rents and are typically forced to move to Class B properties. Investors can typically buy these homes for less than the price of construction and can thus provide a great place to live yet still ensure that rents remain affordable for tenants with different income levels.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki