In the last week, CNBC published an article in which they claimed that "There is an urgent crisis that is coming our way" within the multifamily real estate industry. According to the report the luxury market's upper end is too crowded and vulnerable to market fluctuations or flattening. In fact, apartment developers in the top 150 US cities constructed 395,775 brand new housing units last year, which is an increase of 46% year-over-year. About 75-80% of these new homes are in high-end communities. ,Get more info.

In my time in Boston during the last couple of years, I have witnessed several major developments being constructed at a breakneck speed. The majority of these properties are expensive luxury apartments that the majority of people are unable to afford. The Boston Globe's Spotlight Team recently published a series of articles on the progress of the "Seaport" neighborhood. The article highlighted the city's deficiency of affordable housing as well as the overabundance luxury housing that don't meet the needs of the diverse population of the city.

Are these multifamily developments danger to the multifamily market? The danger to Class A new construction is apparent if the market flattens but the the existing Class B & C multifamily communities are well-positioned to stand up to market imbalances and corrections. Let's look at the reasons the reasons for such an unprecedented growth in the luxury market and what will happen when demand slows.

The demand for luxury goods is high.

There are two major factors driving the demand for luxury apartments. Baby boomers and empty nesters are moving into cities such as Boston, Austin & Denver with a desire for luxury finishes and luxurious properties. This growth can be attributed to the reality that empty-nesters and double-income millennial households are opting to rent instead to purchase. Facilities like top-of-the-line gyms, concierge services and pet spas that are full-service are becoming standard. It seems like there is an inordinate number of amenities offered with each new building. Developers are aggressively incorporating modern amenities in their developments, however it's not inexpensively.

Construction costs are high for new construction.

Luxury housing is the main reason that the majority of developments on the market are high-end. This is due to the growing cost of construction work. Construction is a high-demand industry and materials are at their highest price ever. 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 a budget-friendly construction. It's the same price." It costs the same." To ensure affordable housing cities are now enforcing laws which require developers to build affordable units within their new construction projects. The average number of units as well as the location determines how the developers will be able to charge. These regulations will not result in an increase in the number of affordable homes.

What are the alternatives to affordable housing? Visit here.

Over the past few decades, there has been building boom and bust cycles. You will find many apartments constructed between 1970 and 1990 in various cities across the United States. Although these homes may appear very out of date in comparison to the modern buildings being constructed nowadays, the "bones" are in good shape. Built during this period were constructed using advanced materials and techniques. They usually just require minor repairs, and wear and tear items can be replaced. These apartment communities, and the secondary markets they're in are strategically placed to take on the flood of luxury new homes and to maintain housing that's reasonably affordable. The best part about Class B homes is that they tend to are able to perform well across all economic climates. If the economy is flourishing Class C tenants are able to are able to move into Class B properties . When the economy is struggling and Class A tenants are unable to not afford the high rents and typically move down to Class B properties. Investors can usually purchase these properties at only a small portion of the price of construction, which allows them to provide a great home, but ensure that rents remain affordable for tenants with different income ranges.
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