Why Are So Many Luxurious Apartment Buildings Being Constructed:EITW

CNBC released a report last week that said that the multifamily realty sector is experiencing an "acute crisis". According to the article, the upper-end of the luxury market is too crowded and vulnerable to market declines or flattening. Developers of apartments in the top 150 US towns constructed 395 775 housing units last financial year. This is an increase of 46% compared to the previous year. About 75-80% of these new housing units are high-end communities. ,Learn more.

I've seen a lot of major developments being built at a rapid pace while living in Boston over the last few years. A majority of these developments are luxurious luxury residences that the majority of people are unable to afford. In actuality there is a reason why the Spotlight Team at the Boston Globe recently published a series of pieces that focused on the development of the new "Seaport" neighborhood. It highlighted the city's shortage of affordable housing, as well as the overabundance luxury housing that doesn't cater to its diverse population.

Do these multifamily developments pose a threat to the multifamily industry? If the market is flat it could be a problem for Class A new construction. However the existing Class B & C multifamily communities can stand up to market volatility and market imbalances. Let's look at the reasons why there has been such a luxury boom and what happens when demand slows.

Luxury Demand is Strong

There are a couple of major factors driving the demand for luxury apartments. Generation Y and empty nester baby boomers are making their way to cities like Boston, Austin, and Denver, with a taste for luxurious finishes and amenities-packed buildings. One specific reason for this growth is that a lot of double-income households, as well as empty nesters that can afford to buy are opting to rent. Facilities like top-of-the-line gyms, concierge services, and fully-service pet spas are becoming the standard. There is an appalling number of amenities offered with each new building. Modern amenities are being incorporated into development projects at a rapid pace however, it's not cheap.

New construction is expensive.

The main reason why the majority of developments on the market are high-end. This is due to the increasing cost of construction labor. The demand for construction work is at an all-time high, and the cost of materials is the most they have ever been. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't matter if it's in luxurious buildings or low-cost ones." It's exactly the same price. It's the same." Cities are being forced to adopt rules that require developers to construct a certain number of affordable units in their new construction projects. The number of units and the location determines how much they charge. This will not cause an increase in housing for the poor.

What are the alternatives to housing that is affordable? Find out more.

There have been many boom and bust cycles in the building industry over the decades. There are many apartment buildings built between 1970 and 1990 in various markets across the nation. While these homes may appear old-fashioned compared to modern construction however, the "bones” are still good. The buildings built during this time were built using the most advanced materials and techniques. They usually need only surface repairs and wear items can be repaired. These communities and the secondary markets they serve are well placed to offset the flood of luxury apartment buildings. They also offer affordable housing. The great thing about these Class B homes is that they generally perform well regardless of the economic conditions. If the economy is flourishing Class C tenants can are able to move into Class B homes. If the economy is in decline the Class A tenants will find it difficult to justify the extravagant rents and are typically forced to move to class B properties. These homes are usually accessible for less than cost of building. This allows investors to offer a great place to call home and still maintain attractive rents that tenants of different incomes can afford.

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