CNBC released a report last week that said that the multifamily realty market is in the midst of an "acute crisis". The article concludes that the top end of the luxury market is overbuilt and vulnerable to a flattening or a market correction. In reality, apartment builders in the 150 largest US cities constructed 395,775 brand new housing units last year, which represents an increase of 46% year-over-year. In these new homes, around 75-80% of them are considered to be luxury communities. ,Click here.

While living in Boston over the past few years, I've seen numerous major developments being constructed in a rapid manner. As a result, the overwhelming majority of these are luxurious luxury residences which the average citizen can't afford. In actuality it was the Spotlight Team at the Boston Globe recently published a series of pieces that focused on the creation of the "Seaport" neighborhood. The article highlighted the lack of affordable housing and the overabundance of luxury homes that do not meet the needs of the diverse population within the city.

With the advent of all these multi-family luxury properties is this putting the entire multifamily market at risk of flattening or even a collapse? If the market flattens and the risk of collapse increases, it is for Class A new construction. However existing Class B & C multifamily communities can withstand market fluctuations and imbalances. Let's examine the reasons behind why there's been an unprecedented growth in the luxury market and what happens if demand subsides.

Demand for luxury is on the rise

There are two key drivers behind the demand for luxury apartments. Generation Y and baby boomers who are empty-nesters are descending on city centers like Boston, Austin & Denver with a desire for high-end finishes and amenity-packed properties. This boom is due to the fact that empty nesters and households with double incomes prefer renting rather to purchase. High-end gyms, concierge services and spas with full-services for pets are now the norm. Every time a new construction is completed there is a sense that there is an amenities arms race. Developers are actively incorporating modern amenities in their developments, however they're not inexpensively.

New Construction is costly.

Luxury housing is the main reason that the majority of developments on the market are expensive. This is due to the increasing cost of construction labor. Construction is a high-demand industry and materials are at their highest ever price. As Toby Bozzuto, CEO of Bozzuto Group puts it, "The two-by-4 doesn't matter if it's in a luxurious building or in an affordable construction. It's priced the same." Due to the high cost of materials and labor costs and the appreciation of the raw land, developers are obliged to build luxurious products because the numbers simply don't allow for building any other type of construction. To make sure that affordable housing is available cities are now enforcing laws which require developers to build affordable units within their construction plans. The number of units and the location will determine much they will charge. These regulations will not lead to an increase in affordable housing.

If Affordable Housing isn't Constructed, What's the Alternative? Website.

Over the past few decades, there have been building boom and bust cycles. In numerous markets across the country, you will notice large numbers of homes built between the 1970's and 1990's. Although these properties might seem old-fashioned compared to modern construction but the "bonesremain in good shape. The buildings built in the frame have been constructed with modern techniques and materials. They typically require only surface renovations with the replacement of wear and tear items. These apartment communities, and the secondary markets they're in, are positioned well to counterbalance the flood of luxury homes being built and maintain housing that is reasonably affordable. These Class B properties are able to succeed in any economic situation. When the economy is strong Class C tenants can shift to Class B properties When the economy is suffering and Class A tenants are unable to not afford the high rents and are typically forced to move to class B properties. These properties are often available for less than the cost of building. This allows investors to offer an ideal location to live in and yet still pay appealing rents that tenants of different income levels can afford.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki