This past week, CNBC published an article suggesting that "There is a crisis of extreme proportions that is coming our way" in the multifamily real estate sector. According to the article, the upper-end of the luxury market is overcrowded and susceptible to market corrections or flattening. Apartment developers in the 150 largest US towns constructed 395 775 new housing units in the last financial year. This represents an increase of 46% compared to the previous year. In these new units of housing, about 75-80% of them are considered luxury communities. ,Web site.

When I lived in Boston in the last few years, I've witnessed many major developments being built at a breakneck speed. It's not surprising that the vast majority of these are luxurious luxury residences that your average citizens cannot afford. The Boston Globe's Spotlight Team recently published a series articles about the development of the "Seaport" neighborhood. The article highlighted the city's deficiency of affordable housing as well as the inordinate supply of luxury homes which doesn't accommodate the diverse population of the city.

Do these multifamily developments pose an imminent threat to the multifamily sector? The risk to Class A new construction is evident if the market is flat, however; existing Class B & C multifamily communities are uniquely placed to stand up to market imbalances and corrections. Let's examine the causes for this luxury boom, and what happens if it comes to an end.

Luxury demand is strong

There are two important factors that drive the rising demand for luxury apartments. Generation Y and empty nester baby boomers are making their way to cities such as Boston and Austin as well as Denver. They have a keen taste for luxurious finishes and amenities-packed properties. This growth is due to the reality that empty-nesters and households with double incomes are opting to rent instead to purchase. High-end gyms, concierge services and full-service spas for pets are all becoming regular. With each new building there is a sense that there is an amenities arms race. Developers are actively incorporating these modern perks into their plans, but it's not cheap.

Construction costs are high for new construction.

The main reason why the majority of new developments you see on the market are expensive. This is due to the rising costs of construction labor. Construction labor demand is at an all-time high, as is the cost of materials is at the highest they've ever been. As Toby Bozzuto, CEO of Bozzuto Group puts it, "The two-by-four isn't concerned about whether it's in a luxurious building or in a budget-friendly structure. It's the same cost. Because of the high cost of labor and materials, and the rising value of the natural resources developers are required to construct luxury homes since the numbers don't allow for building any other kind of building. To provide affordable housing cities are enforcing rules that require developers to include affordable units in construction plans. The average unit count and the location will determine much they will charge. But, on their own, these rules do not guarantee a significant increase in the number of affordable housing.

What alternatives are there to housing that is affordable? Visit.

There have been many boom and bust cycles within the building industry throughout the decades. In many markets around the country, you'll find a large number of apartment buildings built in the 1970's-1990's. While these properties may feel old-fashioned in comparison to the modern buildings being constructed in the present however, they're "bones" are in good shape. These buildings were built using the most modern techniques and materials. They generally need only surface repairs and wear and tear items can be repaired. These communities and the secondary markets they serve are well-positioned to counter the influx of luxury homes. They also provide affordable housing. The Class B homes are able to thrive in any economic environment. When the economy is strong, Class C tenants shift to Class B properties. When the economy is weak, Class A tenants are forced to move down to more affordable Class B homes. They are typically accessible for less than cost of building. This lets investors offer the perfect property to live in and yet still pay attractive rents that tenants with different incomes are able to afford.
There are no comments on this page.
Valid XHTML :: Valid CSS: :: Powered by WikkaWiki