Why Are So Many Luxury Apartment Buildings Being Constructed:EITW

CNBC published a report this week that said that the multifamily real estate sector is in the midst of an "acute crisis". According to the report, the luxury market's upper end is overcrowded and susceptible to market fluctuations or flattening. Developers of apartments in the top 150 US towns delivered 395 775 new housing units in the last financial year. This is an increase of 46% compared to previous years. In these new homes, around 75-80% are classified as luxury communities. ,Visit this link.

In my time in Boston in the last few years, I've seen several major developments being constructed at an incredibly rapid pace. Most of these homes 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 growth of the "Seaport" neighborhood. The article highlighted its lack of affordable housing and an abundance of luxury houses that does not cater to the diverse population of the city.

Do these multifamily developments pose an imminent threat to the multifamily sector? If the market slows down, there is a risk 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.

Luxury Demand is Strong

There are two major reasons to the increasing 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 high-end finishes and luxurious structures. This boom can be attributed to the reality that empty-nesters and families with double incomes in the millennial generation are choosing to rent rather than purchase. Perks such as high-end fitness centers, concierge services, and fully-service pet spas are becoming standard. There's an inordinate amount of amenities being offered with each new building. These types of modern facilities are being integrated into the projects of developers rapidly, but it isn't cheap.

New Construction is Cost Prohibitive

The main reason why the overwhelming majority of new residential developments that are on the market is expensive is because of the increasing price of construction materials and labor. Construction is a high-demand industry and the materials are at their highest ever price. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't need to be in high-end buildings or low-cost ones." It's the same price." It costs the identical." To provide affordable housing cities are enforcing rules which require developers to build affordable units within their new construction projects. Typically between 10%-20% depending on the unit count and the location. But, on their own, these rules will not provide a meaningful growth in affordable housing.

What alternatives are there to affordable housing? Website.

There have been numerous cycles of boom and bust in the construction industry over the years. There are many apartment buildings constructed between 1970 and 1990 in various cities across the country. Although these homes may appear old-fashioned when compared to the buildings that are being built nowadays, the "bones" are quite good. The buildings built in the frame were constructed using 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 located in are well-positioned to counterbalance the flood of luxury homes being built and maintain housing that is reasonably affordable. The Class B homes can perform in any economic climate. When the economy is strong Class C tenants are able to are able to move into Class B homes. When the economy is struggling, tenants of Class A have to shift to Class B homes. These homes are usually available for less than the cost of building. This allows investors to offer an ideal location to live in while still offering appealing rents that tenants of different incomes can afford.

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